IRAs and Compound Interest

The following example and text is taken from Dave Ramsay. "How Teens become Millionaires."

https://www.daveramsey.com/blog/how-teens-can-become-millionaires

About Dave Ramsey

Ramsey's syndicated radio program, The Dave Ramsey Show, is heard on more than 500 radio stations throughout the United States and Canada, He has written numerous books including five The New York Times bestsellers. His books and broadcasts advocate a fiscally disciplined approach to personal and household finances, including the strict management of debt, and often feature a Christian perspective.

A Millionaire’s Best Friend

One awesome thing you can take advantage of is compound interest. It may sound like an intimidating term, but it won’t be once you know what it means. Here’s a little secret: Compound interest is a millionaire’s best friend. It’s really free money. Seriously. But don’t take our word for it. Just check out this story of Ben and Arthur from our Foundations curriculum to understand the power of compound interest.

Ben and Arthur were friends who grew up together. They both knew they needed to start thinking about the future. At age 19, Ben decided to invest $2,000 every year for eight years. He picked investment funds that averaged a 12% interest rate. Then, at age 26, Ben stopped putting money into his investments. So he put a total of $16,000 into his investment funds.

Now Arthur didn’t start investing until age 27. Just like Ben, he put $2,000 into his investment funds every year until he turned 65. He got the same 12% interest rate as Ben, but he invested for 31 more years than Ben did. So Arthur invested a total of $78,000 over 39 years.

When both Ben and Arthur turned 65, they decided to compare their investment accounts.

Who do you think had more? Ben, with his total of $16,000 invested over eight years, or Arthur, who invested $78,000 over 39 years?

Believe it or not, Ben came out ahead . . . $700,000 ahead! Arthur had a total of $1,532,166 while Ben had a total of $2,288,996. How did he do it?Starting early is the key. He put in less money but started eight years earlier. That’s compound interest for you! It turns $16,000 into almost $2.3 million! Since Ben invested earlier, the interest kicked in sooner.

What You Can Do Now

From Dave Ramsey: "The trick is to start as soon as possible. Talk to your parents or teachers about how to open a long-term investment account so you can become a millionaire, too. And remember, waiting just means you make less money in the end. So get moving!

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Some Investing Apps that May Help You in your Financial Life

Acorns

Acorns invests your spare change from purchases (you can set it to round up for your checking account, debit, and credit cards) by rounding up to the next dollar and investing it for you. You can pick the investment strategy from Conservative to Very Aggressive, you do not trade stocks, Acorns' does it for you. You can also set a monthly amount to invest on top of that. I suggest starting at $10 per month, plus rounding up to nearest dollar with your spare change. That may be a good start for a student. Acorns also has an IRA possibility called Acorns Later.

Youtube Review on Acorns - https://www.youtube.com/watch?v=_cg73h_pdJE

7 Acorns Alternatives to Consider for Micro-Investing

This link has information on Stash, Betterment, Qapital, M 1 Finance, Public, SigFig, Robinhood

Mint

Mint is a free budgeting tool to create a monthly budget, set reminders or bill pay and track you expenses.

3 minute youtube video on Mint - https://www.youtube.com/watch?v=8oLsEDDT068