3 Reasons To Start Saving Early
Lesson 14 Module 5
The 3 main reasons to ‘Start Saving Early’, are:
- The Power Of Compound Interest
- It Gets Easier To Achieve Your Goals The Earlier You Start Saving, and
- You Can Get A Discount On Your Major Life Goal Expenses
1. The Power Of Compound Interest
Albert Einstein considered ‘Compound Growth - The Eight Wonder of the World’. He also added - ‘He who understands it, earns it. He who doesn’t, pays it.'
The simplest way to illustrate this is with an example.
In the table above, you can see that:
- Ms. Pennywise starts savings 3,600 per annum, at age 21, and stops at age 30. She leaves the money invested till age 60.
- Mr. Prokrass Tinator starts saving the same 3,600 per annum at age 31, and continues doing so till age 60.
- Both their money grows at an assumed growth rate of 7% per annum.
- Mr. Prokrass Tinator isn’t able to beat Ms. Pennywise at age 60 even though he is saving for 20 years more than her.
- Because Ms. Pennywise started earlier, and let Compound Growth work in her favour.
Take advantage of compound growth, Start saving and investing today.
2. It Gets Easier To Achieve Your Goals The Earlier You Start Saving
Imagine you have 10 years till your child turns 18. Assuming you need USD 100,000 for their college education at the age of 18, you have to save USD 10,000 every year.
But you decide to start saving 2 years later, you now have to save USD 12,500 to accumulate the same USD 100,000 in the remaining 8 years, till your child turns 18.
The earlier you start saving, the easier it gets.
3. You Can Get A Discount On Your Major Life Goal Expenses
Let’s consider one of the major milestones of ‘Securing Your Child’s College Education Fees’. If your child is due to attend university this year, forget about getting any discount.
In fact if you take a personal loan to fund any shortfalls between the money you have, and what is needed to pay the fees, you will end up paying more than 100% of the fees, than if you had cash. Remember – personal loans are not without costs.
What happens if you start saving and investing early?
Your money needs time to grow. Let’s say that you start saving when your child is born. You are now giving your money 18 years to grow.
- Assume that university fees are around USD 242,000 by the time your child is 18 taking into account inflation.
- If you start contributing just USD 500 per month for the next 18 years, you would have contributed USD 108,000 in total.
- Assuming that you achieve a 8% growth rate per annum, your education fund would have grown to USD 242,677 over 18 years.
- That’s 2.25 times the amount you contributed, or in other words a 55% discount on the fees you would have paid if you never saved at all, and waited for the last moment.
The earlier you start saving, the higher the discount you will get on your milestone expenses.