Tuesday, January 25, 2011

Kathryn is Blogging

My friend Kathryn is blogging and I wanted to introduce you to her. She's in the hedge fund sales world so she understands finance and money management really well. She also lives in LA and will no doubt share her dating exploits too. Here's a simple but important example from one of her blog posts on the importance of having a retirement account.

"#2 Reason you need to start saving money in a retirement account NOW: You need to take advantage of the fact that you’re still young and reap the benefits of compounding.
What the &*(*&%$# is compounding? The simplest way to put it is: if you wait until you’re 40 to start a retirement fund vs. starting at 33, you’re giving up almost  $170,000 when you are 59 1/2 years old (the age when you can take your money out of your retirement account without paying a fee).

Say you contribute $5,000 per year (to either a 401(k) that your employer provides you or an IRA that you set up yourself, don’t freak, I’ll talk with you below on how to do this) and that money earns 7% per year from the time you’re 33 until you’re 40. You now have $43,000 when you’re 40.

That $43,000 that you are giving up between when you’re 33 and 40 adds up to giving up $170,00 by the time you’re 60. Guess why? Compounding."