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Money

Why starting early matters

Money you invest earns a return, and then that return earns a return. That's compounding. The earlier you start, the more years it has to snowball, so small amounts in your twenties can outgrow bigger amounts later.

Easy10 min to readFree

You'll need

  • The SEC's free compound interest calculator

What to know

How $100 grows at 5 percent a yearA line chart over 25 years. $100 earning 5 percent a year, compounded yearly, grows to $162.89 after 10 years and $338.64 after 25, shown as a gold curve that bends upward. A dashed straight line shows interest earned only on the original $100, reaching $225 after 25 years.$162.89 at 10 years$338.64 at 25 yearsInterest on the first $100 only: $225 at 25 years0510152025Years$100 earning 5% a year, nothing added
Interest that earns interest bends the line upward.
  1. See it in small numbers. $100 earning 5% a year becomes $105 after a year and $110.25 after two, because the second year earns on the interest too (Investor.gov).
  2. Leave it alone and it keeps going: more than $162 in 10 years and almost $340 in 25, without adding a dime (Investor.gov).
  3. Small habits add up. The SEC's example: $1 a day saved and earning 5% grows to $1,577.50 in 30 years (Investor.gov).
  4. Run your own numbers in the SEC's compound interest calculator.
  5. Start with what you have, even a little, and raise it when your pay goes up.
Watch out. These examples assume a steady return. Real investments go up and down, and higher returns come with higher risk, possibly including losing money (Investor.gov).

Good to know

The Rule of 72

Divide 72 by the expected rate of return to estimate how many years it takes to double. At 9%, about every 8 years (Investor.gov).

Savings first, then investing

The SEC says a savings account is a good choice for short-term goals and an emergency fund. Investing is for long-term goals (Investor.gov).

Time horizon

If retirement is 30 years away, you have time to ride out market ups and downs (Investor.gov).

Sources

  1. U.S. Securities and Exchange Commission What is compound interest? (Investor.gov)
  2. U.S. Securities and Exchange Commission Small savings add up to big money (Investor.gov)
  3. U.S. Securities and Exchange Commission Introduction to investing (Investor.gov)
  4. U.S. Securities and Exchange Commission Compound interest calculator (Investor.gov)

Lesson M9.1 · Last checked October 2, 2026 against the sources listed. See a mistake?