We’ve all seen the charts in our high school economics class. Bill invests $5,000 a year from age 25-35, which is a total of $55,000. Frank invests $5,000 a year from age 35-60, which totals $130,000. Bill then ends up retiring with $615,580, and Frank ends up retiring with only $431,754. Even though Bill invested a lot less than Frank, he will still end up with much more money when they both retire at 60. How does this work? Two words: compound interest.
That scenario I just explained only occurs with 8 percent annual return. That means you gain 8 percent interest on your money every year. This will never happen through a savings account. According to CNN Money, the average savings account earned an average of 0.06 percent annual interest in 2013. That means if you have $500 in a savings account, you will earn $0.30 of interest for that year; that’s pretty sad. This doesn’t mean that banks are totally pointless. Checking accounts are good for paying bills and savings accounts are good to store short-term savings. I just think that long-term savings and retirement should be able to grow on their own and work for you.
I started investing when I was 17, so I now have three years of experience in the stock market. I am far from an expert and have made my fair share of mistakes, but I’m glad I’m learning now. I’d rather make those rookie mistakes when I have less money at stake and less risk in my life. The compound interest alone is already a good enough reason to start investing before you graduate college.
Most college students aren’t investing for a few different reasons: they don’t want to lose money, they have bills to pay or they just don’t have the money to invest. Whatever the case may be, investing before you graduate college will actually put you ahead of the game compared to most millennials. According to CNBC, over 80% of millenials are not invested in the stock market.
I get it. Everyone is in different stages financially. Some students are already very well-off ,and others are already in debt paying for school. By simply working hard and saving, you are already doing more than most students do anyways. Investing can take that to the next level for you. You won’t just get my beloved compound interest, but you will learn more about great companies and the various sectors that shape the market.
Hard work and saving will always work out, but don’t be afraid to make your money work for you.
