What advice would you give a young person just becoming financially independent?

Answer 1

Don't underestimate the time-value of money. Start saving now. No matter how much it hurts, sock away five -- even ten -- percent of your salary in long-term (high-yield) savings. And don't pooh-pooh the idea of starting earlier rather than later. Consider this: Earl E. Byrd starts saving $1000 a year when he's 25 years old but stops contributing to the account after just ten years. He doesn't touch the money, however, and lets it ride, accruing interest, for another 20 years. At 55, he cashes out. Ima Spendthrift, who is also 25, doesn't contribute anything at all to a savings account for the next ten years of her life but then decides to start saving and socks away $1000 a year for the next 20 years. At 55, she cashes out. If both Earl and Ima invested at the same interest rate (say 10 percent) who do you think will have more money when he or she turns 55? Ima saved for double the amount of time and therefore contributed twice as much money to her savings account as Earl. But if you said Earl would have more money at age 55, then you go to the head of the class. He would have amassed almost twice as much as Ima. (According to my rough calculations, Earl would have about $107,000, whereas Ima would have about $57,000.) So, start saving now. You can't make up for lost time.