Transcript: my-financial-minute-retirement-compounding-mp4

Who said, “Compound interest is the eighth wonder of the world?”

A. Benjamin Franklin
B. Albert Einstein
C. Franklin Delano Roosevelt
D. Mark Twain

When it comes to finances, knowing what to do can be tricky.  I mean, you've got student loans, auto loans, and other debt, and you've got other things going on - maybe you're beginning a career, buying a home or starting a family.  That's a lot to think about, and on top of that you also have to start thinking about saving for your future.  Believe me, the sooner you start, the fewer worries you'll have down the road.

The key reason to start thinking about the future now is the power of compounding interest.  It is such a key concept, and it's the reason to start putting money away now - even if it's just a little bit.

Let's look at an example. One person opens an IRA with $1,000 at age 20 and contributes $1,000 for the next 10 years and stops at age 30. Another person opens an IRA at age 45 with $1,000 and contributes $1,000 for the next 20 years. At age 65 the person who started at age 20 will have more than $115,000 while the person who started at age 45, will have only $40,000 after contributing twice the amount.

So what's the takeaway? Start putting away money now. Even a little bit per month can really add up. If your company offers a 401(k), and they offer matching savings, contribute at least the match amount or you're leaving free money on the table. If not, open an IRA and set up regular, automated transfers - that way you won't even have to think about it.

So, who said, “compound interest is the eighth wonder of the world?”  The answer is B, Albert Einstein.

I'm your host for My Financial Minute —check back often to continue the conversation.

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