The Cost of Delay
Delaying one's savings can be expensive. Sometimes, it can be very expensive.

An Example
Imagine someone who is presently 30 years old and who will eventually retire at the age of 60. Let's assume they can save USD 10,000 a year. If they were to save this amount each year and earn on this, say, 8% p.a., then at the age of 60, they could expect to have an amount of USD 1,223,459.

Now, if they were to delay their savings i.e. start saving just 3 years later, they would end up getting USD 943,388. That's USD 280,070 less or 23% less than what they would have otherwise got. So you see - the first Dollar is indeed the most important!

If however, their money were to earn them, say 15% p.a., the cost of the delay gets a whole lot scarier. A mere 3 year delay would mean getting 35% less than what they would have got otherwise.

Here's another example:

John starts investing for his retirement at the age of 25. He saves USD 1,000 a month for the next 40 years, on which he earns 11% p.a. At the age of 65, he would have accumulated an amount of USD 646,827.

Steven starts savings only at the age of 35. He too, saves USD 1,000 a month, on which he earns 11% p.a. In contrast to John, he would end up accumulating an amount of USD 221,913. Seeing the difference, he wonders how much more should he have saved to break-even with John, or even how much more return should he have earned.

To break even with John, Steven should have earned 16.5% p.a. on his investments. Alternatively, he should have saved USD 32,500 per month (@11% p.a.) to break even.

Once again, this illustrates the cost of delaying one's savings and investments.

Systematic Investment Plans are a great way of disciplining oneself into saving regularly. The sooner one starts the more one can hope to accumulate.
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By: Alan Dempster
Director of BD Wealth Management. 
The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of any corporation agency or government. Examples of analysis performed within this article are only examples and should not be utilized in real world analytic products as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of any government or corporate entity
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