Thursday, May 9, 2013

Messages from Readers: A Success Story

Struggle and success are related, but when it comes to your finances, you have a lot of control over the amount of struggle you have to endure.

So in an effort to get my blog recognized, I reached out to potential readers by asking them to share my blog whenever they could. I received a message from someone that gives a great example of what starting early can do for you. 

This was written in response to my post on Roth IRAs found here: 


"…You wrote, "Before we proceed, understand that doing this will not make you rich."  Which is true; there are no guarantees.  But investing early greatly increases your odds of becoming rich, due to the power of compounding.  Time is on your side.  If you put $5,000 in your Roth IRA at age 20 and earn an average 8% annual return, and never touch the money, that $5,000 will grow to $160,000 by the time you reach age 65. But if you wait until you're 39 to start, that $5,000 would only grow to $40,000. Time is the primary ingredient to the magic that is compounding. If you can contribute $5,000 annually to your Roth IRA for 45 years, and earn an average 8% return, your retirement savings will total over $1.93 million.  Inflation will reduce the purchasing power of 1.9 million; but that will still be a good nest egg.  

I'll let you in on my secret: I was 20 when I started my IRA (we didn't have the Roth yet back then).  In my mid-20s, I wrote down a series of goals at 5 year intervals, based on how much I could contribute at the time and my expected returns.  My returns have been a little lower than I expected, but over time they raised the contribution limits so I've been able to invest more than I'd planned (it was $2000 annually for IRAs when I started).  My plan started with $10,000 in the retirement account, and it ends with 3.7 million at age 66.  (Even if I fall short of my total goal by 30%, I'll still have a pretty god retirement nest egg.)  Twenty years into it, I'm roughly at the halfway point, and a little ahead of where I expected to be.  If you can double your investment every 7 years or so, it's those last 14 years before retirement that get exciting. So, to go back to your statement, "Doing this will not make you rich," it actually can - you are using the power of compounding to grow wealth, which only works if you start early.  If someone waits until age 45 to start saving for retirement, they miss out on years (potentially decades) of compound growth, and it's very difficult at that point to catch up to an investor who started early…" 

middle aged personal finance nerd

I feel like I'm outsourcing my blog writing, but he really did do a great job of explaining the benefits. I hope this encourages you to start investing soon!


Photo credit: Krissy.Venosdale via photopin cc


  1. Personally, one thing that always keeps me from starting my own investments is my lack of time to research and find out all this stuff on my own.

    And I also hesitate because I would rather use the money when I'm younger and have more potential and desire to go out and do things in the world...whereas, when I'm older in my 60s, I'll have less drive and desire to do those things with my money. And living in retirement money actually sounds a little boring to me...

    Maybe it's just my lifestyle choice. I know I should be saving up and preparing, but I feel like its kinda preparing for the last years of my life, whereas I'd be satisfied with a meager retirement account and just spending my time doing humanitarian or volunteer work.

    1. 1) Hire me to do it for you! :D Just kidding, I'm not a professional. But it is a lot easier and less time consuming than most people think to begin investing. In fact, I think that if you're doing it right (and you're not a professional investor), you spend a couple of hours putting your money somewhere, set up an automatic transfer system, and just leave it. Your investments shouldn't be a daily chore.

      2) I understand where you're coming from! I personally like feeling financially secure so that's why I'm learning all this stuff. :P

  2. In addition to being able to negotiate over fees, if your account is in good standing, you often can negotiate interest rates charged on a credit card. It is best to request this when you have no revolving balance- certainly not when you are maxed out. If you have a balance transfer offer from another credit card, it doesn't hurt to mention that when speaking with a representative.

    Interest charged over time on a revolving balance can be considerable, as can shaving a few points off the interest rate. It pays to maintain a clean credit history!

    1. Thanks for your time, Larry! I am very grateful for your comment. :D