Lesson 5.1: Saving Goals, Emergencies & the Power of Starting Early
The Go Further companion to Lesson 5.1 in Money Decisions.
Compound Interest Calculator
The Securities and Exchange Commission's free calculator: give it a starting amount, a monthly addition, a rate and a number of years, and it draws compounding — the Head Start lesson, with a graph.
Key ideas from the lesson
- Match the money to its job: money for next month, or for emergencies, stays saved — safe, insured and reachable. Money you won't touch for 10 or more years can be invested, because it has time to ride out bad years.
- Compounding is why time matters: at 7% a year, money roughly doubles about every 10 years. The Rule of 72 — 72 ÷ the rate ≈ the years it takes to double.
- Start at 18 and your money gets four or five doublings before 65. Start at 28 and it gets about one fewer — and that one is the biggest. A late start can't be fully fixed with bigger deposits, because what's missing is years, not dollars.
- The enemy isn't math, it's present bias. Systems beat willpower: automate savings on payday before you see the money (“pay yourself first”), name the account for its goal, keep it at a separate bank with no debit card, and wait 48 hours before any unplanned purchase over $50.
Why this helps
The Head Start is really one claim: years beat dollars. The SEC's calculator is the claim with dials on it — change nothing but the start date and watch the ending balance move more than any deposit increase can move it.
Try this
Run the calculator twice: $50 a month at 7% from age 18 to 65, then the same $50 a month starting at 28. Write both ending balances and the difference — then check the doubling claim with the Rule of 72 and note whether the graph agrees.
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