By David Vogelsang
“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 learned about the incredible time-value of money when I was close becoming 40 years old. The time-value of money explained simply is that a small, insignificant amount of money invested over a long period of time can grow into a significant and life-changing amount of money. The key is that the more time you have, the more your money can grow.
So naturally, when I learned about this simple concept so late in life, at first I was mad. Why didn’t anyone teach me this sooner? But I realized that thinking this way was very selfish of me. I mean, most people go through their whole lives never knowing or taking advantage of the time-value of money and I am just so grateful to have learned this simple yet elusive concept. I began to realize that I still have plenty of time to take advantage of this powerful concept, and I thought, What if I applied this concept to my kids who have even more time than myself? Then I thought, What if I share what I’ve learned so that others don’t have to possibly learn this too late in life or to possibly never learn this in the first place?
So, when I learned this concept, my kids were 3 and 7 and I wondered how much they needed to invest to have a million dollars by age 65. Now when I talk about investing, I am not talking about saving in an account at the Bank or Credit Union – I’m talking about getting some Mutual Funds and actually investing that money in the Global Economy. So, the first thing I did was help my son earn some money and by the time he was 8 years old he had a whopping $335.00 to invest! As unexciting as this might seem, my son still had lots of time on his side, 57 years to be exact, until he would turn 65. And, would you believe that while invested over that period of 57 years, that insignificant $335.00 would grow to over $300,000.00! So, I figured worst case scenario, my son only had to invest $335.00 per year for only 4 years between the ages of 8 and 11 and without adding any more money, it would be very possible to accumulate over one million dollars by the age of 65! And that could all be done by only a total investment of $1340.00!
Now, if you think that is incredible, my daughter was younger, so she would have even more time for her money to work for her than her brother. My daughter was 5 at the time she started investing. Comparing apples to apples, if we were to just take the same $335.00 her brother made and invest it, but she had 60 years until age 65, that would grow to over $400,000! So the money, working only 3 years longer than it did for her brother would grow an extra $100,000! Now that’s the time-value of money! Again using worst case scenario of only making $335.00 per year and investing it, she would only have to invest for 3 years between the ages of 5 and 7 and have over a million dollars by the age of 65 – all from a total investment of only $1005.00!
So do I have your attention now? Do you see the importance of understanding the time-value of money? – Not only understanding it but taking advantage of it. Isn’t that exciting? And that wasn’t that hard, was it?
But remember these are our kids and it is not just about the money, it is more important about the good habits they are forming and the people they are growing into along the journey. Keep this in mind and you can make this a fun experience with your kids as well as a learning experience. Now my kids are 13 and 9 and I am happy to say that over the years they have exceeded the worst-case scenarios of only investing $335.00 per year and they are well on their way to becoming future millionaires.
Now for those of you who are thinking to yourself, How does this help me? I don’t have any kids or I am too old. Well, it is never too late to take advantage of the time-value of money – it just becomes more and more expensive the longer you wait. If you were wondering how much it would cost you to have one million dollars by retirement, check out one of my earlier posts 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. For more great articles like this, please visit http://dvogelsang.blogspot.com.