“Set a goal to become a millionaire for what it makes of you to achieve it. Do it for the skills you have to learn and the person you have to become.” ~ Jim Rohn
I discovered the remarkable concept of the time value of money when I was nearing 40 years old. In simple terms, it means that a small sum of money invested over a long period can grow into a significant amount. The more time you have, the greater your money can multiply.
Initially, I was frustrated to learn about this concept so late in life. Why hadn’t anyone taught me this sooner? But I soon realized that dwelling on this was self-centered. Many people go through life without grasping or benefiting from the time value of money. I felt grateful to have learned it and began to contemplate how to apply it to my children, who had even more time ahead of them. I wanted to share my newfound knowledge so others wouldn’t miss out.
At the time, my children were 3 and 7 years old, and I pondered how much they needed to invest to reach a million dollars by age 65. I wasn’t talking about mere savings accounts; I meant investing in mutual funds in the global economy. So, I helped my son earn money, and by age 8, he had $335 to invest. Despite seeming modest, with 57 years ahead until age 65, that $335 could grow to over $300,000! I calculated that by investing just $335 annually for 4 years between ages 8 and 11, he could potentially accumulate over a million dollars by 65 with a total investment of $1340.
My daughter, being younger at 5, had even more time for her money to grow. Using the same $335 investment but with 60 years until age 65, her money could exceed $400,000, $100,000 more than her brother’s. Again, with a minimum investment of $335 annually for 3 years between ages 5 and 7, she could potentially amass over a million dollars by 65, with a total investment of $1005.
Now, do you grasp the significance of the time value of money? It’s not just about understanding but leveraging it. And it’s not as daunting as it may seem.
Yet, remember, it’s not just about the money; it’s about instilling good habits and nurturing their growth. Making it a fun and educational journey with your kids is key. Now, my kids are 13 and 9, and they’ve surpassed the minimum investment scenarios, well on their way to becoming future millionaires.
For those wondering how this applies to them, whether childless or older, it’s never too late to benefit from the time value of money. Waiting only makes it costlier. If you’re curious about the cost of delaying your path to a million dollars by retirement, check out my earlier post titled “Don’t Pay the High Cost of Waiting – Start Now!”
David Vogelsang makes weekly posts to his blog titled Spreading Financial Confidence… One Post at a Time.Â
