Hosted By: Wyatt Yates
Money Myth: I Can Invest Later
In this episode, I discuss why waiting to save and invest for retirement is a bad financial habit. How much does delaying paying yourself cost you? What are the 3 reasons you cannot follow this mindset of investing later? Listen to find out.
Go to this retirement calculator and enter in your current financial data and age to see what you will have in retirement savings at age 67. Then change the age number to 10 years from now to see what you would have if you waited 10 years. What is the number? How much more will you have to contribute if you wait 10 years? That is the power of starting now.
Wyatt Yates Host 00:00 Money doesn't have to be complicated. You can achieve financial independence. This podcast gets to the truth behind the money mess you hear from your grandma, your broke uncle, the latest social media influencers and the so-called money experts. Welcome to Money Myths with your host, wyatt Yates. 00:23 This week's myth is I can invest later. So we're going to dive into the whole thought process of I can invest later. Is it right? Should you believe this? Should you think this? 00:35 So this myth is very prevalent amongst young people, especially. Right, because you are young, you think you have plenty of time. You can always save and invest for your retirement at a later time. Right now, you have different priorities and you'll do retirement later. It's the classic procrastination trap that we can all fall into. Right, we always have more time, we'll do that at a different time and we always have more time until we don't. 01:04 Which is the problem with this myth? So I want to look at three reasons why you can't think like this. Now, if you are young and you have a bunch of student loan debt and you're working through your debt, or even if you're older, if you're working through your debt, I want you to tackle that debt first. The same thing as far as focus on one big financial goal at a time, your big financial goal being getting out of debt first. But let's say that you're out of debt, except maybe you have a mortgage, which is fine. But let's, for what I'm talking about this week, I'm always thinking that the person you're out of debt, except maybe your mortgage, okay. So the first reason why you can't think like this or follow this myth is when you have this thought process and you're not making saving and investing a priority and you're creating bad financial habits. You're creating bad money habits and, before you know it, you're 50 or 60 years old and the I can do it later is upon you and you haven't done anything. And I can't tell you how many people come to me in their 50s and 60s and thought I can always do it later. I can always do it later. 02:25 And there was always another financial priority whether it be getting out of debt or maintaining a lifestyle that you really can't afford, or wanting to buy that one thing that you really deserve and really think you need, or upgrading your house to a home that you really can't afford there's always a priority and you start this cycle of everything comes before saving and investing for retirement, and you got to think of saving and investing for retirement as you're paying yourself. And when you make all these other priorities, these money priorities, these financial priorities, ahead of that, you're saying those are worth more than yourself. And you go down this track where eventually, you're going to hit 50, 60 years old and realize I never saved. So when you have this thought process, you're not making it a priority and you're creating bad financial habits. You always got to look at I'm going to pay myself first. I'm going to pay myself more than what I pay the government or what I pay creditors. You work hard. You should be the one that's benefiting the most from your work, not creditors or other companies that are selling you products or the government taking your taxes. You should be the primary beneficiary of your hard work. So you got to pay yourself first if you're going to be that beneficiary. So don't think this like this, where you can always do it later. 04:06 And then you know, 2010, 2030 years down the road, you never made it a priority and you have these bad habits. So that's the first reason. The second reason is you never know what's gonna happen in the future. I mean, how many of you, looking back you know yourself five, ten years ago, even 20 years ago, depending on your age would picture what's happened in your life, the way it's happened and where you are right now. Would you be able to predict that? When you look back, there's probably several things that have happened that you would have never foreseen right, and when you use this thought process Besides the fact that you're getting bad financial habits You're assuming that everything's gonna go the way you have it thought up in your head and the way you've planned it out, and that's never the case. You don't know what's gonna happen in the future. So when you delay paying yourself and saving and investing for retirement, if there's a hiccup in the future which guess what most likely there's gonna be you are only hurting your future self. 05:18 You know what? If you become Disabled and you can't work and you have no income to be able to save and invest in the future? And if you didn't do it earlier, then you set yourself up for failure. You know what? If you Start a family and decide you want to be a stay-at-home parent and now you don't have income? Maybe you only have your spouse's income, so now you're unable to save that future income that you had time to do it later, right, but now you don't have that income to save. So or if your income goes down now, maybe you're stretched to be able to pay just your bills, to keep a roof over your head and provide food and clothing and transportation. So you never know what's gonna happen in the future. So when you don't have a sense of urgency to start paying yourself, saving, investing, you can set yourself up for failure, because there is gonna be times when it gets harder Financially. You're gonna have a lost job, you're gonna have something happen and You're not gonna be able to save. So the earlier you can start Will help get you through those times when you have fluctuations in income to where you're unable to do it. So that's the second reason you don't know what's gonna happen in the future. 06:40 The third reason which should really open up your eyes on what you're missing out on is what they call Compound earnings, or you may hear it called compound interest. I like think of it more as compound earnings, especially if you're investing in equities like stocks or mutual funds in the stock market. Compound interest would apply more so towards bond type investments and stuff that are earning interests where your stock market investments are increasing in value because the underlying company that you are, in essence, an owner in is Becoming more valuable. That company's value is increasing. So that's why I like to refer to it as compound earnings, because in, in essence, your your initial investment is increasing in value because of the earnings of the company, or are Increasing so, and then you eventually get it to. Those earnings are then increasing, so your Earnings are making money for you and not just your initial investment. The value of compound earnings or compound interest, really is magnified by the length of time you're invested. So the longer you are invested in something that's earning a return on your money, the more your earnings are gonna keep on building up and earning money for you. So I just want to go through a few examples to kind of highlight the fact that the longer you're invested, the more power this compound earnings really builds, and really is Is what will lead to wealth building. You know People that have a lot of money wealthy people, rich people. They understand this concept and that's why they are buying real assets. They are buying ownership stakes in companies, whether it be privately or publicly traded companies. They're buying real estate. They're buying things that increase earnings that are then compounding and they're holding them for long periods of time. 08:50 So let's walk through the example I gave in my Financial Tip Friday email that went out last week. If you're not subscribed to that, you can go to our website, ruggedfinancialcom. Get subscribed so you get these in combination with the podcast. But let's look at four different people. So the underlying assumptions on this are that these four people will all work and invest and contribute to their retirement accounts or some type of investment up until age 67. So currently, age 67 is gonna make you eligible for full benefits from the standpoint of Social Security. So what does it take for these four individuals to have a million dollars in their retirement account at age 67 when they go to retire? The other underlying assumption in this example is that each one of these people's investments earn 7% rate of return annually after expenses. So it's pretty conservative estimate. If you look historically, stock market does anywhere 10 to 12% annually. It's been worse later because you have a lower interest rate environment, which many would argue is gonna affect returns and drive returns lower. So I like to use a more conservative assumption on you're only making 7% on your money after expenses here. 10:21 So we have four people. Their age is 25 is the first person. Second person is 35. The third person is 45 and the fourth person is 55. So these people will contribute a dollar amount every month, starting at the age they start at, so age 25, starting at age 25, starting at age 35, starting at age 45 and starting at age 55. They make a monthly contribution up until they reach age 67 to be able to retire and they're earning 7% on their money. So the person one who starts at age 25 to have a million dollars in their retirement account by age 67, they have to make a monthly contribution under these assumptions of $330. If they contribute $330 from age 25 and never increase that amount up until age 67. So for 42 years they make a $330 monthly contribution they will have a million dollars in their retirement account when they go to retire age 67. So their total contributions are gonna be $166,000. So only 17% of the million dollars they actually had to contribute. The other $830,000 in appreciation is the value of the compound earnings. So they contribute $166,000 over 42 years but their investments have grown another $838,000. So they have over a million dollars in retirement. 12:04 Now, if you look at, if you waited 10 years and you didn't start until age 35, what would you have to contribute to have that million dollars? So, by waiting 10 years, you now have to contribute $700 a month, every month, from age 35 to 67, to get that million dollars when you go to retire. So instead of contributing $166,000 that the first person at age 25 that started at age 25 had to contribute, you now have to contribute $269,000 to get the same ending number at age 67. So your monthly contribution has to be more than double what it would have been if you would have started 10 years earlier. In your total, contributions now are $269,000 versus $166,000. And your growth, your earnings, what your compounded earnings have grown over the time that you're contributing, the 32 years that you contribute, is $731,000. So $731,000 versus $838,000. So you can start seeing how this compound earnings works that you're missing out on by waiting 10 years. 13:22 Let's say you wait another 10 years and you don't start until age 45. So you have 22 years to contribute instead of at the beginning, where you had 42 years. So now, instead of $330, you have to contribute $1,600 a month to get a million dollars by the time you retire. So over four times what you would have had to contribute each month if you would have started at age 25. So now, instead of your total contributions being $166,000, your total contributions are $423,000. And your appreciation and your investment and your contributions is only $577,000 versus $838,000 if you would have started at age 25. 14:12 And let's take a step further. Let's say we wait until age 55, which is not uncommon. I have a lot of people come to me in their 50s and 60s saying I want to retire, I haven't saved anything. What do I need to contribute? So if you waited until age 55. So another 10 years after age 45 to have a million dollars, at the end you would have to contribute $4,450 every month to have a million dollars. So your total contributions are now $641,000 and your earnings are only $359,000. So drastic difference. 14:54 If you wait until age 55 versus age 25, you're going to have to contribute almost a half a million dollars more to reach that million dollar mark where you're not having that value of your money earning money for you. This is why it's so important to start earlier, because then your money is earning money and then those earnings that you didn't even have to contribute for and are earning additional money, and the longer your money is invested, and the longer your money is working for you, the more it gets magnified. That's the whole concept of this compound earnings. So that's why this myth of I can always do it later is you're literally missing out on hundreds of thousands of dollars, if not millions of dollars, depending on your situation. So you can't let this mindset creep in and miss out on something this big. And that's what wealthy people and that's what rich people understand and that's why they're throwing a ton of money into investments every single year, because they understand if they get their money working for them, it will only lead to more wealth creation. 16:08 So you can't Think like this. You can't think that I'm I can just do it later. I Mean, yes, technically you can, but your future self is gonna suffer because you are delaying Paying yourself. Your future self suffers because you're not making Paying yourself a priority and you're developing and creating bad financial habits. You're creating bad money habits and you're not gonna know what's gonna happen in the future. You can't predict the future and you don't know what your income is gonna be like in the future. So you can't use this thought process and you're missing out on your money going to work for you with the value of compound Earnings or compound interest. So that's why you can't think like this and why you need to make Saving and investing and paying yourself first a priority in your life if you want to win with money. 17:03 So for the action step this week, I want you to just look at how Delaying Saving and investing for retirement would impact how much you have to contribute to reach the same Objective. And whatever your your number is that you want to have in your retirement accounts to be able to retire. So the two resources I really like for their financial calculators for stuff like this is nerd wallet or Ramsey solutions. So I'll include a link to the nerd wallet retirement calculator in the show notes and I want you to go click on that link and go to the retirement calculator. And in that retirement calculator You're gonna enter in your current age and your current income and what you've currently have saved in in Retirement savings, and then you're gonna put in how much you're contributing every month Into your retirement and that's gonna populate a number of what you're gonna need to retire at age 67 and how much you will have. 18:08 And then I want you to change the age that you entered in 10 years and See how much that impacts how much you have to contribute every month to be able to get the same number you would have had if you started today. So that's your objective. So you can really see how much Waiting 10 years or even do it 20 years or 30 years and see how much it affects you have to contribute in. That's compound earnings. That's the value of your money, working and making money for you. So do that exercise so you can really identify what you're missing out on by not starting now. 18:49 And, like I said, you have to do things in order and you have to focus on one big financial priority at a time or you're not gonna make traction anywhere. So if you are Burden with debt right now, I want you focusing on hammering through getting that debt out, and you should be able to do it within two years. But let's say you've gotten that taken care of. Your focus now is really paying yourself and and putting a lot of money to work. So this will help highlight what waiting and not making paying yourself a priority Does in terms of your finances and what you're missing out on. So thanks for listening. See you next week. 19:30 Want to achieve financial independence. Go to ruggedfinancialcom when you can download my free PDF of the 12 things to do to win with money, and you can also sign up for my weekly money tips emails, where I cover the same tips and tricks and advice I walk all my clients through so you can begin your journey to financial independence. Thank you for watching and listening to this episode of the money myths podcast. Please do me a favor and, if you found this episode interesting, subscribe to the podcast so you can make sure you get all the future episodes. Also, leave a rating and review so you can help us grow this podcast so we can leave more people to financial independence. And, lastly, please take a screenshot of the episode, share it on your social media channels and tag us using at rugged financial. We will see you later.