Hopefully, if you are a teen growing up in today’s society you’re not too depressed by the headlines about your future. With the amount of information bandied about concerning the ecornomic collapse, stock market corrections, and job losses there is a good chance that you believe your future is bleak. Well, I am here to tell you that nothing could be further from the truth, and with a little bit of hard work and discipline you can become the millionaire you have always wanted to be.
It might be tempting to think that most of the wealthy people in the world have inherited their money, however the vast majority of wealthy people in the world were self-made through a disciplined saving and investment strategy. As a teenager this must sound extremely boring, but there is something special about this strategy that I didn’t become aware of until I was 31 years old. By that time I had already lost out on a whole lot of money, and I don’t want the same thing to happen to you.
What is this secret you ask?
The name of the secret that could allow a teen to easily become a millionaire is called:
Before we begin to talk about what makes compound interest so special, we should understand some simple financial terms that will make the explanation perfectly clear.
Principal – For our purposes, this is the amount of money invested into a company that will collect earn interest.
Interest – This is the amount gained on your investment, which is determined by the success of what you decide to invest in. e.g. Savings account, Stocks, Bonds, Mutual Funds.
Compound Interest – This occurs when your original principal amount and the interest that has been earned on the investment collectively accrues more interest than the original prinicpal.
In simpler terms, the more you invest the more you will earn, and the earlier you invest the more you will earn. Unfortunately, it is quite common for teens to believe that since they are young there is no reason to save. Currently, only 22% of teens understand the basic fundamentals of investing, and the trick to truly having compound interest work for you is investing properly as early as you can.
The famous anti-debt guru, Dave Ramsey, uses an example in his teaching of a 19 year old that invests $2000.00 each year for 8 years, and stops at 26 years old.
In contrast, a friend of this person begins to invest $2000.00 per at 27 years old, and continues to invest $2000.00 per year until the age of 65 years old.
In the end, the fellow who only invested for 7 years ends up with $700,000 more than his friend, in spite of his friends continued investing an additional $78,000 over the next 39 years! That is absolutely amazing!
This was based on an equal 12% interest gain each year, compounded until the age of 65. Are you beginning to see how vital it is to start investing early?
Now that I am in my mid-thirties with the responsibilities of an amazing wife and children, I wish I would have understood the importance of compounding interest as a teenager. As a chiropractor in Seattle, I also am solely responsible for my own investment and retirement plan as the owner of my own small business. This, however, is becoming the norm for many workers who are having their benefits cut, and with the threat of social security not being there for future generations, the time is now to get compound interest on your side.
I highly encourage all of you to begin investing in your future with the help of compound interest. In addition, you may want to seek out the knowledge of a fellow like Dave Ramsey, whose finanical advice is what set me on the right path of saving and becoming debt free.
If you do these little things now you will end up in the position you want and deserve, which is important since you will not be a teenager for very long. Trust me, I know.
About the author: Dr. Graeme Gibson is a Seattle chiropractor who has been in full time practice at Queen Anne Chiropractic Center since 2001. In his spare time he enjoys spending time with his family, as well as playing hockey, cooking, and writing about health, wellness, and frugality. If you would like to read more from Dr. Graeme, please visit his chiropractic blog.
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