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Creating Sustainable Wealth While Still in Your 20s

Source: Vanguard

Assume an investment of $10,000 at the beginning of the investment period (which can span for 40 years or more when you are in your 20s) and that you get paid 6% interest.

If you withdrew your interest income annually from your investment account, your ending value will, of course, be $10,000.

On the other hand, if you reinvested all your interest income at the assumed 6% interest rate, your investment portfolio value would have skyrocketed to more than $102,000 after 40 years.

This is the demonstrated power of compounding.

3. Stay out of debt

This should be fairly intuitive, but unfortunately it isn't. Many people live way above their means and actually slip into debt at an early age.

Understand that our society glorifies consumption and doesn't view debt as a bad thing.

But it is. Nothing kills dreams and financial independence more than consumer debt. High-interest rate credit card debt is especially toxic for your financial future and should be avoided at all costs. Remember: Rich people earn interest, average people pay it.

The Foolish Bottom Line

The biggest advantage you have to setting the foundation for sustainable wealth is your young age. Start saving and investing your money on a regular basis when you are in your 20s when you don't have a lot of expenses to cover. Make sure you have a solid understanding of the concept of compounding.

Watching your savings grow on a consistent basis can be very empowering and satisfying, too. If you want to accomplish your dreams, whatever they are, start saving today and stay as far away as possible from any form of consumer debt.

How to get even more income during retirement

Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

The article Creating Sustainable Wealth While Still in Your 20s originally appeared on Fool.com.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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