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The Cost of Financial Procrastination

| August 24, 2015
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08/24/2015: Contributed by Greg Middendorf, CFP® CCPS® 

If you had a dollar for every time you heard the phrase “start investing early” you could retire with a million. If you actually acted on that phrase, you are probably retiring with more money. Passing on a few of the wealth building tips that you have learned over your lifetime might be one of the most important things you can do for the next generation of your family.   

When one of your family members starts a job and begins to make money, the last thing they want to think about is saving for retirement. More likely, they will be concerned with the costs of living on their own, paying down student debt, and working their way towards a big promotion at work.  In reality, there is no better time than a first job to start a systematic wealth-building plan. It’s not critically important how much money is saved in an IRA, 401(k) or other type of retirement plan. What really matters is starting a retirement savings habit as soon as possible and investing persistently.

For example, let’s assume that a 19 year old invests $2,200 per year ($183 per month) in an IRA and earns an 8% return. They will hypothetically retire at age 65 with over $1 million dollars.

It is human nature to focus on our immediate needs, but the costs of financial procrastination can be enormous.

Even a few years makes a difference. In the second example, we assumed that our 19 year old delayed saving for five years. The impact of delaying means he or she will have about $353,000 less in their portfolio at age 65, even though the difference in total investment was only $11,000.

Here’s a chart to illustrate the power of compounding and the cost of procrastination.

Talking about money is difficult. People may not feel comfortable with their knowledge of the subject, or they may feel that it’s an impolite discussion topic. We all want our children and grandchildren to enjoy the best that life has to offer, to do better than us financially and to learn from our mistakes and achievements. Passing on knowledge is one step to helping them succeed financially. It is never too early to start teaching them about the value of money. In fact, the sooner you start the more of a financial edge you will give them. 

Content in this article is not intended to be financial advice. Instead, we think of it as educational and financial education is important to us.

The Cincinnati retirement planning firm of Hengehold Capital Management.

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