Years ago, I lived in a large apartment complex with friends from college. We were newly minted graduates entering our chosen careers. The combination of discretionary income and living in a new city kept us occupied during our time outside of work. Visiting the mailbox was a chore that none of us prioritized so mail would tend to pile up in the mailbox, then on the kitchen table, then perhaps make it into some form of “processing.”
One piece of mail sat on my desk for weeks. The words “DMV” caught my attention enough to warrant top-of-the-pile treatment. I saw that letter containing my car’s registration sticker multiple times a day for weeks. One morning, I left our front door towards my car on the way to work only to find that my car was not where I parked it. Sadly, this was not the first time this had happened to me; my car was stolen in college, so I was familiar with the feeling of “dude, where’s my car?” It took a quick trip to the apartment leasing office for me to learn that my car had been towed…due to an expired registration.
Procrastination is the action of delaying what could be done today. Frequently, procrastination leads to self-inflicted challenges that make progress toward a goal more difficult. In my case, taking a few minutes to exchange a sticker would have saved me hundreds of dollars and a PTO day.
Unfortunately, procrastination can have much more devastating effects in other parts of our lives. Financially, postponing saving and investing can be incredibly costly because we miss out on the magic that is compound growth. The following example shows why it is so important to avoid procrastination when it comes to saving and investing.
Early Bird Gets the…
Let’s consider Jim and Dwight, who each invest a hypothetical $10,000 to start. One of them begins immediately, but the other procrastinates.
Jim begins depositing $10,000 a year and earns a 6% rate of return. After 10 years, he stops making deposits. His investments continue to grow and compound.
Dwight delays investing for the same 10-year period. He eventually realizes that he should not procrastinate and begins investing. He invests the same $10,000 a year earning 6% but does so for 20 years. He knows he’s playing catch-up due to his late start.
Jim has invested $100,000 while Dwight has invested $200,000. Whose account balance is greater in 30 years?
Jim’s! Jim has accumulated over $480,000 even though he stopped contributing after 10 years. Dwight has “only” accumulated $400,000 despite saving twice as much as Jim.
We don’t all have a 30-year time period and we aren’t all in “saving mode” but compound growth works all the same. Keeping your money growing for longer is the best way to increase and preserve your wealth. Whether you’re getting an early or late start, the Seaside team would love to help you avoid procrastination and make progress toward your goals.