Taking advantage of the powerful impact time can have on your savings

In previous articles, we have discussed the importance of saving early in your career.  Let's spend some time on this issue to understand its importance.

Although investment returns rarely are consistent year by year, we can make assumptions based on annualized returns over a period of many years.

A balanced portfolio of 60% stocks and 40% bonds has provided an annualized return of 6-10% in general over the last 70 years-depending on the 10 year plus time period in question.  Let's take an annualized return of about 7% a year as your outcome on early savings.

Related: When to know if you need to refinance a mortgage

There is the rule of 72, which approximates the number of years to double your money at any given interest rate.  So, if we are taking a long term annualized rate of return of 7%, it would take about 10 years to double our money.

So, one dollar deposited on year one of your savings would double every 10 years.  If you start at 25, that dollar would become 16 dollars when you turned 65 (assuming no taxes, such that it was put into an IRA or retirement plan).  Proportionally, $10,000 would become $160,000! 

Money deposited in year two would be very marginally less, but would be expect to total the same at age 66. On and on this goes. 

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