Wimpy, of the old cartoon show, Popeye, loves hamburgers, a passion that leads to his signature line, “I’ll gladly pay you Tuesday for a hamburger today.” This line leads us to our topic of discussion today. Will the dollar you have today be worth more tomorrow?
A dollar this year may be worth much more next year. The opposite of what Wimpy was suggesting. This variation in the value of our dollars is one of the fundamental principles of finance and you need to firmly establish it in your mind as you contemplate investing. Your $1 today invested wisely can be worth much more next year. The best advice you can take is to remember this forward -looking growth statement. You need to realize the value of every dollar that comes into your possession.
Using your money wisely can offset such factors as inflation. If you can invest and earn a dividend or capital gains on your dollar, you stay ahead of the decline in value related to inflation. Realizing the full potential of every dollar you have is key to building wealth. Think of dollars as seeds. You can eat them (spend) or sow them (invest.)
Think in terms of the future value of your dollar, not what it is worth at the moment.
Assume you are 30 years old and 35 years from retirement at age 65. That means that an investment you make now has 35 years to compound. If you invest at a good rate of return, you’ll have a good nest egg when you retire. The historic rate of return on the stock market is 12 percent. The return on bonds is slightly lower. A combination of both could predictably give you a return of 10 percent.
Using these variables and estimates, you could assume that failing to invest $20 today could cost you approximately $562 over 35 years. Adjusting for inflation, the cost could be closer to $140. Even so, your purchasing power would have increased some seven-fold.
Multiply $20 by whatever amount you are able to invest, and you can see that failing to invest now has significant impact on what you can expect to have in the future.
Seen in this context, you may reassess how much a seemingly small luxury you indulge in today can add up to a significant loss in the future. Think ahead.