Friday, June 6, 2008

More on Interest

According to wikipedia, the median household income in 2006 was just over $48,000 a year. So, let's just say this is your average lifetime salary and you saved 10% before tax (with 401k, IRA, savings account, whatever) every year. Finally let's also say you were getting 6% interest compounded monthly, and you did this from the time you are 40 to 65 (or 25 years).

$48,000/year -- putting $4,800 away a year -- that's only $400 a month

After 25 years, just from 10%, you will have $269,657 in your account!!

BUT if you started early, say at 25, and put away $4,800 a month till you are 45 and then added NO MORE MONEY when you turn 65 you will have over $595,000!

Talk about the power of compounding interest!

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