Why is it Important to Start Saving Early?

A fews days ago , I mentioned that it is important to start saving as early as possible. I would now like to illustrate this in terms of the table given below.

Assume that a person saves $500 per month and assume that his desired age of financial independence is 55. How much funds do you think this person would have accumulated when he reaches 55.

See this:

Starting ------------------------ return per year ----------------------
Age 2% 5% 7% 10% 15%

30 $196,025 $300,681 $406,059 $649,091 $1,468,272
35 $148,700 $208,316 $263,191 $378,015 $ 706,861
40 $105,836 $135,945 $161,328 $209,698 $ 328,305
45 $ 67,012 $ 79,241 $ 88,702 $105,187 $ 140,096
50 $ 31,849 $ 34,811 $ 36,920 $ 40,294 $ 46,522
55 $ 0 $ 0 $ 0 $ 0 $ 0


What does the above table tell us?

1. There is cost for waiting. A person aged 30 who save $500 and invest at a rate of 7% will reap $406,059 when he reaches 55 whereas a person aged 40 will reap only $161,328. That is 3 times less than the person who starts early.
2. The longer you delay, the more pain you give yourself. In order for the person aged 40 to achieve the same amount of funds, as the person aged 30, when he reaches age 55, he will have to save much more every month. How much? $1,274 every month (assuming a return of 7%).
3. How much funds you are able to accumulate shall depend on WHEN you start and the investment returns you get. If you just leave your saving money earning 2% and do not make your money work harder for you, you are not going to get far in reaching your retirement funds either.
4. It is possible for a person to achieve financial independence just by saving and investing over a sufficient period of time.

For those who are already late in adopting this strategy, do not worry. It is still not too late to start saving now. However in order to achieve your financial independence, you will need to look at other wealth creation strategies as well.