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Basic Finance That Young People Should Know

One has to understand the impact of compound interest to get a better idea about the need to comprehend how important savings are. If you look at lives of our fathers and grandparents, it is quite likely that the company for which they worked took care of their retirement income. However, the onus now is gradually shifting to the employees now. Today’s employers look at employees only as short term assets and ensuring their retirement future is not exactly, their domain. Hence, the onus squarely rests on employees to understand the importance of saving early in their lives.

The Power of Compound Interest

Though the interest on your savings might look quite insignificant on paper, when one tries to plot it on an excel sheet over a period of say 20 to 30 years, there is every reason to believe that it certainly has a huge power of duplication and multiplication. Thus, if you understand the logic of saving heavy and at a young age, you will certainly be able to understand how much it could help you in your retirement age.

Few Live Examples

A person who saves $5,000 for a period of 10 years from the age 25 to 35 would see his or her savings kitty reach around $550,000 when the person reaches retirement. In the same light, if a person has the common sense to invest the same $5,000 but from age 25 to 65, then he or she is certainly securing his/her future and is also able to beat inflation quite easily.

The Myth Called Social Security

Social security is often referred to as the panacea for all those who are planning lives after retirement. However, the fact of the matter is that the average American who is dependent on social security will get a monthly benefit of around $1,200, which is very paltry sum. Hence, the need to understand the importance of saving early and saving for a longer period of time is something that cannot be brushed aside.

Though it is important to lead a healthy and luxurious lifestyle when you are young, you should have the vision and foresight to think of life 30 or 40 years from now, when all the active income will start drying up. It is the intelligence and common sense that you show now which will help you to build a good retirement portfolio which will stand in good stead, in times of need and necessity.