A wealthy man was asked if he had seen the seven wonders of the world. He responded, “No, but I do know the eighth wonder of the world—compounding.” It’s important to understand the three variables in compounding: the amount you save, the percentage rate you earn, and the length of time you save.
1. The Amount
The amount you save depends on your income and spending. We hope you will increase the amount available for saving as you learn God’s way of handling money.
2. Rate of Return
The second variable is the rate you earn on an investment. The following table demonstrates how an investment of $1,000 a year grows at various rates.
| Percent Earned | Year 5 | Year 10 | Year 20 | Year 30 | Year 40 |
|---|---|---|---|---|---|
| 6% | 5,975 | 13,972 | 38,993 | 83,802 | 164,048 |
| 8% | 6,336 | 15,645 | 49,423 | 122,346 | 279,781 |
| 10% | 6,716 | 17,531 | 63,003 | 180,943 | 486,851 |
| 12% | 7,115 | 19,655 | 80,699 | 270,293 | 859,142 |
As you can see, an increase in rate has a remarkable effect on the amount accumulated. A two percent increase almost doubles the total over 40 years. But since higher returns usually also carry higher risks, be careful not to shoot for unrealistic returns.
3. Time
Time is the third factor. Answer this: Who would accumulate more by age 65: Jennifer who started saving $1,000 a year at age 21, saved for eight years, and then completely stopped; or Matt who saved $1,000 a year for 37 years starting at age 29? Both earned 10 percent. Is it Deborah who saved a total of $8,000 or Matt who saved $37,000? Check out the following chart.
| Deborah | Matt | |||||
| Age | Contribution | Year-end Value | Contribution | Year-end Value | ||
| 21 | 1,000 | 1,100 | 0 | 0 | ||
| 22 | 1,000 | 2,310 | 0 | 0 | ||
| 23 | 1,000 | 3,641 | 0 | 0 | ||
| 24 | 1,000 | 5,105 | 0 | 0 | ||
| 25 | 1,000 | 6,716 | 0 | 0 | ||
| 26 | 1,000 | 8,487 | 0 | 0 | ||
| 27 | 1,000 | 10,436 | 0 | 0 | ||
| 28 | 1,000 | 12,579 | 0 | 0 | ||
| 29 | 0 | 13,837 | 1,000 | 1,100 | ||
| 30 | 0 | 15,221 | 1,000 | 2,310 | ||
| 31 | 0 | 16,743 | 1,000 | 3,641 | ||
| 32 | 0 | 18,417 | 1,000 | 5,105 | ||
| 33 | 0 | 20,259 | 1,000 | 6,716 | ||
| 34 | 0 | 22,284 | 1,000 | 8,487 | ||
| 35 | 0 | 24,513 | 1,000 | 10,436 | ||
| 36 | 0 | 26,964 | 1,000 | 12,579 | ||
| 37 | 0 | 29,661 | 1,000 | 14,937 | ||
| 38 | 0 | 32,627 | 1,000 | 17,531 | ||
| 39 | 0 | 35,889 | 1,000 | 20,384 | ||
| 40 | 0 | 39,478 | 1,000 | 23,523 | ||
| 41 | 0 | 43,426 | 1,000 | 26,975 | ||
| 42 | 0 | 47,769 | 1,000 | 30,772 | ||
| 43 | 0 | 52,546 | 1,000 | 34,950 | ||
| 44 | 0 | 57,800 | 1,000 | 39,545 | ||
| 45 | 0 | 63,580 | 1,000 | 44,599 | ||
| 46 | 0 | 69,938 | 1,000 | 50,159 | ||
| 47 | 0 | 76,932 | 1,000 | 56,275 | ||
| 48 | 0 | 84,625 | 1,000 | 63,003 | ||
| 49 | 0 | 93,088 | 1,000 | 70,403 | ||
| 50 | 0 | 103,397 | 1,000 | 78,543 | ||
| 51 | 0 | 112,636 | 1,000 | 87,497 | ||
| 52 | 0 | 123,898 | 1,000 | 97,347 | ||
| 53 | 0 | 136,290 | 1,000 | 108,182 | ||
| 54 | 0 | 149,919 | 1,000 | 120,100 | ||
| 55 | 0 | 164,911 | 1,000 | 133,210 | ||
| 56 | 0 | 181,402 | 1,000 | 147,631 | ||
| 57 | 0 | 199,542 | 1,000 | 163,494 | ||
| 58 | 0 | 219,496 | 1,000 | 180,943 | ||
| 59 | 0 | 241,446 | 1,000 | 200,138 | ||
| 60 | 0 | 265,590 | 1,000 | 221,252 | ||
| 61 | 0 | 292,149 | 1,000 | 244,477 | ||
| 62 | 0 | 321,364 | 1,000 | 270,024 | ||
| 63 | 0 | 353,501 | 1,000 | 298,127 | ||
| 64 | 0 | 388,851 | 1,000 | 329,039 | ||
| 65 | 0 | 427,736 | 1,000 | 363,043 | ||
| 8,000 | 37,000 | |||||
Incredibly, Deborah accumulated more because of the earlier start. So start saving now!
