Why You Should Start Thinking About Retirement in Your 20s (Yes, Really)

1. Compound Interest
2. Reduces financial anxiety as you age
3. Early Freedom and Flexibility

Compound Interest:

Simply, Simple interest earns interest on just your principal amount year after year. While compound interest earns interest on your principal amount plus, second year onwards,  earns interest from both the principal and interest combined.

Compound Interest in Action.

Let’s say you invested $1000 just once and left it at two time points, let’s say when you’re 20 years old and at 30 years old, let’s see how much each would have grown to in 30 years at 7 percent interest each year.

At 60 years,

If you had invested when you were 20 years old, the amount would be $14,974. If you had invested when you’re 30, the amount when you’re 60 would have become $7,612. 

I mean, what? Yes, it’s nearly double. 

So I think there need be no more convincing on the power of compound interest. If you’re already 28 like me, you are so pissed off right now, I can understand, but hey, we still got time to make more money, Cheers!

So let’s see how to get started. We need to find a vehicle for this that we can first trust. We need the return to be stable unlike stock market ups and downs.

Let’s go with a strong commercial bank’s fixed deposit @7% (lowest return possible)  interest rate. If you have a better alternative where you think your money is safe, comment below.

So now we have picked our investment vehicle and we could either make a lump sum or monthly payments to our investment.

Now lets see some of the common mistakes to avoid when we are in our compounding interest and retirement planning journey.

1. Starting late – makes you not harness the full offering/power of compounding.
2. Ignoring the impact of inflation.
3. Investing too little
4. Not maintaining discipline and breaking the compounding.

Reduces Financial Anxiety as You Age

1. Imagine when others are worried about money in their 50s, you know you were smart and started thinking about retirement when you were 20. There will be very very less financial related worries and more time to enjoy life.
2. The need for debt will be less to nil. So less headaches related to debt.
3. You don’t need to rely on others for money like your kids or pension from the government.
4. Early planning gives you freedom and flexibility.