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Whitney’s Dilemma

Compounding Interest Case Study

Whitney is 25 years old and a college graduate. She makes $48,000 working in online marketing. She has a 401(K) but wants to start a brokerage account. She would like to begin investing $150.00 per month right away, but is hesitant because she fears she will not have enough money to save for a down payment on a house and she does not want to alter her lifestyle. She wonders if starting to save now is worth it. Perhaps she should wait a few years before she starts investing. Whitney decides to crunch some numbers and decides to go to:

http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx .

Whitney has $5,000 set aside for an initial investment and decides she could put $150.00 per month in the brokerage account. She assumes she will earn a return of 6% on average per year compounded annually. Since she is not planning on touching this money, she plans to leave it in till she is 65.

The question she poses to herself: Is it best to start when I am 25 or wait till I am 35?

Age Starts

Age Ends

Contributes How Many Years

Interest Rate

Compounded

Total Saved

Starts at 25

65

40

6%

Annually

Starts at 35

65

30

6%

Annually

Whitney saved $____________________.00 more by starting today instead of waiting.

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