As women, it’s important that we start investing sooner in our lives. One of the greatest gifts we can give ourselves is carving out an hour or more each week to review our finances, and to begin investing our cash on hand.
Investing our money is a critical part of creating personal, long-term financial security. Whether you’re single, in a relationship, married, divorced, or widowed, learning how to do this is a valuable tool to have in your femme toolbox.
Along the timelines of our lives, we can maximize our wealth by harnessing the power of compounding. The sooner we invest $1, the sooner it starts making money for us. A dollar invested today is worth more than a dollar invested in 5, 10, or 20 years from now.
When I was getting my Master’s Degree in Finance in my twenties, I learned about the power of compounding and though I had heard the term before, I suddenly understood what it meant on a whole different level. It was like a light bulb went off in my head.
I re-evaluated my income and realized I could be putting away more money into investments each month, and could thus increase my wealth exponentially over my lifetime. Since that turning point, I have seen my retirement funds and investments grow steadily, and I always encourage the women in my life to start investing more money, as soon as possible.
Here’s why compounding is so cool.
Let’s say you take $100 from the income or wages you earned for the month of February, and decide to invest it. Imagine that the $100 you put into an investment account this month earns 20% this year. (That’s one of the great things about investments, they earn money for you in the form of interest). Next February 2018 rolls around, and now you have $120 ($100 that you started with PLUS the $20 which represents 20% of $100) sitting in your account, for doing nothing, other than the time you took time to put in the initial investment.
Okay, so let’s say that in the second year, your account earns 20% again. Awesome. What’s neat is that you earn 20% on $120, not simply the initial investment of $100. Hence “compounding” — everything builds on itself. So by February 2019, you now have $144 in your account (that’s $120 that you had as of last year, plus the $24 which represents 20% of $120).
Finally, imagine that instead of just investing one time, you’ve actually been adding money once a week, once a month, or four times a year…in that case, you earn even more money in the long run as it snowballs into wealth.
In her groundbreaking work to encourage women to invest their money, Sallie Krawcheck, a well-known financial advisor, founder of Ellevest, and author of the new book “Own It: The Power of Women at Work,” explains: “If we can help women close that gender investment gap, it’s good for everybody.”
She’s right. It not only benefits our pocketbooks, but it helps keep our families financially stable, strengthens our communities and local businesses, and invigorates the economy.
As we strive for women’s equality, let’s set our sights on becoming financially empowered in the same way that men are empowered. Investing our money is a key component of making progress and taking us one step closer towards equality.
To read Kristen’s personal blog visit: A Sparkly Bit of Everything
Originally published as “This Valentines Day, Invest in Yourself” at www.huffingtonpost.com on February 7, 2017.