Why do I need to invest?
Pick up a calculator. Now visit the Michigan Teacher Retirement website and figure your future pension. Can you honestly say that this will be enough? Is your Social Security benefits going to make it that much better? To make matters worse, you will likely have to pay most if not all of your health insurance (unless you REALLY want Medicare...). Also realize that you will have taxes taken out of every check you receive and your yearly cost-of-living increase isn't that much. Do you see this set of state pension/tax laws staying the same or perhaps getting even worse (be honest, and also look at the history of this system). If you were hired after 2012, your state pension is significantly less than older teachers and you must provide for most, if not all, of your retirement expenses.
What am I getting at? We teachers must realize that our financial destiny is in our own hands. Unless we have a spouse with a significantly better retirement plan waiting in the wings, we will definitely need to supplement our retirement income.
Understanding the principles of personal finance, investing, investment choices, etc. is not overly complicated and most if not all of us can become a wise, DIY (Do-It-Yourself) investor. Most of us already know some of the core personal finance principles, but with a little more knowledge, we can also have a good understanding of investing basics.
Magic of Compound Interest
Albert Einstein said that compound interest is the "greatest mathematical discovery of all time." The more time you have to invest and the earlier you start (NOW), the better off you will be in the future. Even a modest amount invested each month starting in your 20's will yield more for the future than heavy investing in your late 30's and 40's. Compound interest is your money earning interest upon your contributions PLUS previous year's interest earnings. Over a long time, compound interest looks more like an exponential graph - the greatest gains being made after 30-40 years of investing. Even if you don't have 30-40 years, starting now will ensure greater compounding than starting later.
Example:
At age 20, Sam starts investing $2,000 per year. He stops after just 10 years and lets the money grow. His brother Carl waits until age 30 to invest $2,000 per year and does so every year until age 65 (both earn an average interest rate of 10%). Sam invests only $20,000 and Carl invests a total of $70,000, but because he started late, his brother Sam actually beats him. Sam, starting at age 20, ends up with $985,336.91 by age 65, but Carl who started later in life (and actually invested more money), ends up with only $596,253.61 at age 65. The guy that started earlier invested $50,000 LESS and ended up with $389,083.30 MORE! That's almost $400,000 gained by just starting earlier! Time is on your side! Start now!! Click the financial calculator link below and do some calculations based on an 8-9% return. You CAN save enough to have a more comfortable retirement and perhaps have enough to leave an inheritance to your kids and grand kids.
What am I getting at? We teachers must realize that our financial destiny is in our own hands. Unless we have a spouse with a significantly better retirement plan waiting in the wings, we will definitely need to supplement our retirement income.
Understanding the principles of personal finance, investing, investment choices, etc. is not overly complicated and most if not all of us can become a wise, DIY (Do-It-Yourself) investor. Most of us already know some of the core personal finance principles, but with a little more knowledge, we can also have a good understanding of investing basics.
Magic of Compound Interest
Albert Einstein said that compound interest is the "greatest mathematical discovery of all time." The more time you have to invest and the earlier you start (NOW), the better off you will be in the future. Even a modest amount invested each month starting in your 20's will yield more for the future than heavy investing in your late 30's and 40's. Compound interest is your money earning interest upon your contributions PLUS previous year's interest earnings. Over a long time, compound interest looks more like an exponential graph - the greatest gains being made after 30-40 years of investing. Even if you don't have 30-40 years, starting now will ensure greater compounding than starting later.
Example:
At age 20, Sam starts investing $2,000 per year. He stops after just 10 years and lets the money grow. His brother Carl waits until age 30 to invest $2,000 per year and does so every year until age 65 (both earn an average interest rate of 10%). Sam invests only $20,000 and Carl invests a total of $70,000, but because he started late, his brother Sam actually beats him. Sam, starting at age 20, ends up with $985,336.91 by age 65, but Carl who started later in life (and actually invested more money), ends up with only $596,253.61 at age 65. The guy that started earlier invested $50,000 LESS and ended up with $389,083.30 MORE! That's almost $400,000 gained by just starting earlier! Time is on your side! Start now!! Click the financial calculator link below and do some calculations based on an 8-9% return. You CAN save enough to have a more comfortable retirement and perhaps have enough to leave an inheritance to your kids and grand kids.