Just out of college? The best thing you can do for your retirement is to save money every month and keep doing that for the next 40 years.
Time and consistency are the keys to taking advantage of a financial power that turns small investments into big ones.
The name of this secret power? Compound interest.
With compound interest, you earn interest on the money you invest initially and the accumulated interest from previous periods. The longer you keep your money in a compound interest account and the more consistently you add to it, the more money you'll make.
According to Kiplinger, if you invest $1,000 at an annual interest rate of 8 percent, you'll earn $80 interest after the first year. The next year the interest is calculated not on your original $1,000 but on $1,080, so your total becomes $1,166.40. When you see the effect over decades, the small amount turns into a big amount.
If you invest $500 per month beginning at age 25 at 8 percent, you end up with about $1.7 million by age 65, but your contributions would be just $240,000. On the other hand, if you wait until 35 to start saving the same amount, you'll end up with $714,000, having contributed $180,000.