The trick to accumulating wealth is not to budget for it. If you try to budget a share for savings, this item will always be at the bottom of the list since all other expenditures either have a more immediate, short-term benefit or may (inevitably) prove to be more urgent. Instead, you need to make the saving process so automatic that it doesn't require a conscious decision or act by you. Automatic withdrawals from your paycheck or your checking account that go directly to an IRA, other retirement plan account or into personal savings and investments can achieve this result. The sooner you set up an automatic savings plan, the more you'll have saved up. A simple example shows the benefit of starting to save today. Scenario One At age 30, you put $2,000 into an IRA or other tax-deferred retirement plan (i.e., one that grows income-tax free until distributions are taken out). At ages 31 and 32, you also add $2,000 each year. Then, you stop making any contributions. If those three $2,000 contributions generate a return of 10% per year, then at age 65 you will have $140,000. That's $140,000 from three $2,000 contributions. Scenario Two If, instead, you waited until age 45 to make your first $2,000 contribution and then you made $2,000 contributions religiously every year for the next 19 years under the same conditions as Scenario One, you would have $114,000, almost 20% less, at age 65. Compound interest/compound growth How can 20 contributions of $2,000 produce less than three contributions of $2,000? The answer is compound interest (also sometimes called compound growth). Compound interest or compound growth refers to the effect over time of an investment growing in value and the reinvested growth also increasing over time. With a savings account, compound interest lets you receive interest on your interest. The longer you've invested, the greater the opportunity for compound interest or growth. Compound interest is the reason why the earlier you start saving for your financial independence, retirement or your children's college education, the less you'll have to put away each month. With compound interest, once you've worked for your money, your money starts working for you. The bottom line Ideally, you should arrange for automatic monthly payments to come off the top and go into some form of investment, inside or outside of an IRA or retirement plan. If that isn't possible due to ever increasing financial demands, then whenever you get a bonus, raise or refund, why not take all or a portion of that windfall to open up or add to your savings, investments or retirement fund? So what's the lesson? Take the first step and invest as much as you can, as early as you can, to have the greatest opportunity for compound growth. If you delay, you will pay! Copyright 1998, 1999 Don Silver (Author of The Generation X Money Book and Baby Boomer Retirement)