The Price of Procrastination

Procrastination. We all cringe at the word. However, we have all fallen subject to procrastination at one point or another. Think of that term paper that wasn’t written until the night before it was due or the bedroom that didn’t get cleaned for, well, let’s just say it was a while. What else have you procrastinated doing? What were the consequences of that procrastination? A bad grade? A really mad parent? What if I told you that procrastinating to save and/or invest money could cost your future-self a substantial amount of money? This is true thanks to a very important financial concept known as the time value of money.

The time value of money means that money received in the future is not equivalent to money received today. Whew, this sounds technical, but it is easily illustrated by an example:

Shannon receives a total of $1500 for high school graduation. She decides to place this money in an account earning 7% interest. She adds no additional money to the account and ignores it. By the time she is 60, the account is worth $25,716! That is quite the paycheck for doing nothing.

We won’t go into the technicalities of how the time value of money works. Just know that time, money, and interest work together to increase the value of money. In order to take advantage of the time value of money, all you have to do is place your money in an account that earns interest.

Let’s give another example to illustrate the importance of saving and investing money as early as possible:

Meet twin brother and sister, Paige and Patrick. Patrick is a planner, and Paige is known for putting things off to the last minute. Patrick starts investing for retirement at age 22. He puts away $3,000 per year for 10 years (investing a total of $30,000). He stops contributing but leaves the money in the account. Paige, of course, waits until she is 28 to start investing for retirement (with a lot of push from Patrick or else she would have waited even longer). Paige also contributes $3,000 per year, but she continues to contribute that amount until she retires at the age of 65 (investing a total of $111,000). Paige and Patrick both earned an average of 10% interest on their accounts. Who do you think has the most money by the age of 65? Look at the chart below - you may be surprised!
 

Even though Paige contributed more of her own money to the account, her total account value is still less than Patrick’s account. $125,207…that is a hefty price tag for procrastination.

In order take the fullest advantage of the time value of money remember that time, money, and interest work together to increase the value of the money:

Remember the price of procrastination when it comes to saving and investing money. Think about your future and save and invest money as early as possible!