I have seen Mel's example criticized, but I showed it to my kids as teenagers, and they were impressed.
If you save $1,000 yearly at some reasonable return (say, 7%), after 11 years the investment will be earning more than $1,000 per year. Suppose you then stop adding money, and your brother starts saving $1,000 per year. Since your reinvested return is more than his savings, he will NEVER catch up.
There are two things: Compounding, and the number of years you have to save. Obviously, if you save for 40 years (age 25-65) you will have to save (much) less per year than someone starting at 35 (30 years) or 45 (20) years.
The astounding answer is, at 7%, if you save $1,000 per year, after 40 years you will have $213,610. To reach that same number in 30 years you will have to save more than twice as much per year. To reach it in 20 years you have to save nearly five times as much.
Code: Select all
1000
Saved Earned Total
0.07 1 1,000 70 1,070
2 1,000 144.9 2,215
3 1,000 225.043 3,440
4 1,000 310.79601 4,751
5 1,000 402.5517307 6,153
6 1,000 500.7303518 7,654
7 1,000 605.7814765 9,260
8 1,000 718.1861798 10,978
9 1,000 838.4592124 12,816 2113
10 1,000 967.1513573 14,784 Saved Earned Total
11 1,000 1104.851952 16,888 1 2,113 147.91 2,261
12 1,000 1252.191589 19,141 2 2,113 306.1737 4,680
13 1,000 1409.845 21,550 3 2,113 475.515859 7,269
14 1,000 1578.53415 24,129 4 2,113 656.7119691 10,038
15 1,000 1759.031541 26,888 5 2,113 850.591807 13,002
16 1,000 1952.163749 29,840 6 2,113 1058.043233 16,173
17 1,000 2158.815211 32,999 7 2,113 1280.01626 19,566
18 1,000 2379.932276 36,379 8 2,113 1517.527398 23,196
19 1,000 2616.527535 39,995 9 2,113 1771.664316 27,081 4870
20 1,000 2869.684462 43,865 10 2,113 2043.590818 31,238 Saved Earned Total
21 1,000 3140.562375 48,006 11 2,113 2334.552175 35,685 1 4,870 340.9 5,211
22 1,000 3430.401741 52,436 12 2,113 2645.880827 40,444 2 4,870 705.663 10,787
23 1,000 3740.529863 57,177 13 2,113 2979.002485 45,536 3 4,870 1095.95941 16,753
24 1,000 4072.366953 62,249 14 2,113 3335.442659 50,985 4 4,870 1513.576569 23,136
25 1,000 4427.43264 67,676 15 2,113 3716.833646 56,814 5 4,870 1960.426929 29,967
26 1,000 4807.352925 73,484 16 2,113 4124.922001 63,052 6 4,870 2438.556814 37,275
27 1,000 5213.86763 79,698 17 2,113 4561.576541 69,727 7 4,870 2950.15579 45,095
28 1,000 5648.838364 86,347 18 2,113 5028.796899 76,869 8 4,870 3497.566696 53,463
29 1,000 6114.257049 93,461 19 2,113 5528.722682 84,510 9 4,870 4083.296364 62,416
30 1,000 6612.255043 101,073 20 2,113 6063.643269 92,687 10 4,870 4710.02711 71,996
31 1,000 7145.112896 109,218 21 2,113 6636.008298 101,436 11 4,870 5380.629008 82,247
32 1,000 7715.270798 117,933 22 2,113 7248.438879 110,798 12 4,870 6098.173038 93,215
33 1,000 8325.339754 127,259 23 2,113 7903.7396 120,814 13 4,870 6865.945151 104,951
34 1,000 8978.113537 137,237 24 2,113 8604.911373 131,532 14 4,870 7687.461311 117,508
35 1,000 9676.581485 147,913 25 2,113 9355.165169 143,000 15 4,870 8566.483603 130,945
36 1,000 10423.94219 159,337 26 2,113 10157.93673 155,271 16 4,870 9507.037456 145,322
37 1,000 11223.61814 171,561 27 2,113 11016.9023 168,401 17 4,870 10513.43008 160,705
38 1,000 12079.27141 184,640 28 2,113 11935.99546 182,450 18 4,870 11590.27018 177,166
39 1,000 12994.82041 198,635 29 2,113 12919.42514 197,483 19 4,870 12742.4891 194,778
40 1,000 13974.45784 213,610 30 2,113 13971.69491 213,567 20 4,870 13975.36333 213,623
L.