Budgeting Mistake: Stopping Your Contributions

Steady and consistent contributions toward your retirement savings are crucial when it comes to ensuring you have enough saved when it comes time to bow out from the labor force. Most importantly, it allows you to maximize the remarkable effect of compounding.

In other words, compounding is earnings on earnings. It has a snowball effect, especially in a tax-deferred account like a 401(k) or traditional IRA in which tax on profits is postponed.

The returns you earn on your investments are reinvested, and they yield more returns. They’re then reinvested, which produces even more returns, and so on. But the earlier you start saving, the greater the compounding effect.