Also, this doesn't quite work either:
but he talked about the impact of compound interest in a way that made me understand it. In scenario one, you start saving X number of dollars per month now (I was 21), and keep saving until you’re 25. Then you stop saving, don’t touch the money, and keep it in the stock market until you’re 65. In scenario two, you start saving when you’re 25, save the same X number of dollars per month, and keep saving until you’re 65. In either scenario, you’ll end up with the same amount of money.
Well, it works, but you have to earn 15% per year for 40 years. Might be slightly optimistic! :) If I earned 15% per year, I'd love investing too!
It's amazing how cherry picking numbers tells you what you want to hear! If you click through the link to the Dave Ramsey site, he uses a 12% rate to show that "Ben" will have more at age 65 than "Arthur" by investing for his first 8 years. But if you use a 7% rate, magically Arthur does better. The lower the interest rate, the better Arthur does. Since we can't control interest rates, it's best to save early AND save often. That's the real ticket to success. Combine those with reducing your expenses you have the MMM triple threat.
However, I do appreciate when someone gets excited over the simple math of investing, and as long as the person follows through, it doesn't really matter why or how the fire is lit. Personally, I hesitate sometimes to use these kinds of "math tricks" because I don't want to mislead someone that doesn't feel as confident working with numbers. I like building calculators in Excel, so I happily run different scenarios. Not everyone is like this, but I would rather try to help them understand the relationship between interest rate and time generally, rather than give an example out of no where. A lot of people see "example" and think "binding fact for life."
