financial reflections

Michelle Singletary wrote about the power of compound interest. She says she wishes she hadn’t invested so heavily in bonds when she was younger.  While there is something to learn from her mistake, she apparently did something very right in her youth.

The one thing she did right - in my opinion - is to start investing while young.  It seems that far too few people do it.  The gains that are made in over time due to compounding interest are amazing.  There are charts and calculators all over the place to show the growth.  I just received one today from a 401(k) provider that caught my eye.  Hypothetically, saving $200 per month in an account that makes an annual return rate of 8% makes me $117,000 in 20 years.  That isn’t much, but it’s about $117,000 more than I have now.

So what am can I do now?  Start.  The worst thing I can do about retirement is ignore it.

Here’s my plan, moving forward:

1. Unload my credit cards.  I’m cash flow strapped.  Unloading the debt will free up the money I need to invest.
2. Open a 401(k) plan.  My employer offers one.  It’s a great way to start.
3. Open a Roth IRA for myself and my spouse.  I change employers often, so this is a great plan for me.

With some luck, I’ll be better off when the time comes for me to retire.  I certainly believe I’ll be much better off than if I do nothing, which would only compound the mistakes I’ve already made.