Don’t Waste Your Money on Depreciating Assets
“During my 20s, I was single and had reasonably well-paid management jobs in the foodservice industry, but I also had a history of putting a fair amount of my discretionary funds into depreciating assets like several used European sports cars,” said Timothy Wiedman, who worked as an associate professor of management and human resources at Doane University before retiring at age 62. “As used cars, they all developed mechanical problems at one time or another that usually seemed to require expensive imported parts and/or specialized tools to repair. I also took multiple week-long ski trips to resorts in Colorado, Quebec, and New England, and one summer, I decided to buy a small sailboat. I justified this poor money management by telling myself that I could always ‘catch up’ later on my long-term financial plans after establishing a more solid career and seeing my income increase.”
According to Wiedman, not taking advantage of compound interest by spending instead of saving was one of the worst financial decisions in his life. If you want to avoid making the same mistake, discover 8 Most Important Financial Decisions of Your Life.
“Back then, I was only vaguely aware that the earning power of compound interest was based on time, so my initial delay in saving for the future could have severe consequences,” he said. “Thus, while opening an IRA as early as possible was vital, I didn’t do so until I was nearly 32 years old.”
Your Action Plan
If you stop wasting your money on depreciating assets, you will manage to save extra money and use it to open a high-dividend savings account. You can either opt for a PenFed account or a retirement account, like a Roth IRA.
“If a 23-year-old fresh out of college put $3,000 per year into a Roth IRA that earns a 7.8% average annual return, 44 years later at full retirement age, that $132,000 of invested funds will have grown to $1,009,275,” said Wiedman. “On the other hand, starting the same Roth IRA 22 years later will yield quite different results. Putting $6,000 per year — the current maximum for folks under age 50 — into that Roth IRA for 22 years still equals a total investment of $132,000, but at full retirement age, still earning the same 7.8% average annual return, those funds will have only grown to $324,562. The delayed start will have cost our investor more than $684,000.”
