Why should you start investing?

Retirement is expensive. If you want to retire comfortably at age 65, you’ll have to save up 25-years worth of living expenses to be able to maintain your lifestyle. And if you want to retire early (let’s be honest, I think everyone wants this), you’ll need to save up even more money.

Now you could try to save this amount of money all on your own, but for most people that is quite literally impossible. 

Let’s say you feel comfortable being able to live off of $30,000 per year. In order to retire comfortably, you’d need to save a minimum of $750,000 ($30,000 x 25 years), and that doesn’t even account for inflation. Do save that much money you would have to put aside $1,785 every month for 35 years. 

Now say you decided to invest your money instead of keeping it in a savings account in low-risk investments that grow on average by 8% each year. To reach $750,000 in 35 years you’d need to invest just $350 every month. By investing your money instead of holding it in a savings account, you’d end up with the same amount of money for retirement, but you’d only have to save $136,500 of the $750,000 yourself since your money grew for free through your investments. 

Now you could of course just put your money in a high-interest savings account. The banks will pay you between 0.05% - 2% in interest for keeping it there. But have you ever thought about WHY the banks pay you interest, when you’re the only one using their service? Spoiler alert- it’s because your money isn’t actually sitting still at the bank. When you put money in a high-interest savings account, the bank gets to use that money and invest it for a profit. So while they’re making 8%+ profit off of your money every year, you’re getting less than a 2% cut of it. 

Another reason why you should start investing is inflation. Inflation is simply the general rise in prices over time. Have you ever wondered why the price of clothes is so much higher than when you were growing up? Or do you ever reminisce on a time when gas prices were less than $1? The reason the price is so much higher is because of inflation. 

The amount of things you can buy today with $20 is much less than what $20 would have bought you in 1990. And as long as inflation continues to go up (which is does almost every year), the value of your money will decrease over time. Inflation tends to make prices go up by on average 2% each year, with some years being much lower or higher than others. Let’s say you spend $60/week on groceries today. Assuming that inflation hotels steady at 2% of year, that same grocery purchase will cost you $120 in 35 years. 

What this really means is 1) your retirement will cost much more than what retirement costs today, and 2) if your money isn’t growing by at least 2% per year, your money is actually worth LESS than what it was worth the previous year.