Ms. Penny Wise and Mr. Prokrass Tinator – The Power of Compound Growth

pennywiseThe Power of Regular savings & Compound Growth

If you have read my book – ‘Creating, Preserving, Distributing Wealth’, you will have read the definition of ‘Wealth’. Wealth is defined in terms of ‘time’ as in how long your money will last you at a given rate of spending.

Accumulating wealth is simple but not easy and it starts with a mind-shift. The mind shift is about saving money first and then spending the remaining. It’s quite simple.

You will have to make some sacrifices, some hard decisions on whether you want to live ‘Pay-check to pay-check’ or be wealthy.

So, here’s an example of how simple regular savings can work wonders with the power of compounded growth.

Ms. Penny Wise and Mr. Prokrass Tinator

This is a story shared with me by my old boss John McNicholas. It illustrates the power and effect of starting to save early enough in life.

Ms. Penny Wise was a 21-year old woman who knew little about making money. When she was young, her father had taught her the importance of regular savings and putting money aside for a rainy day. So, following his advice, as soon as she got a job, she started saving $300 per month and invested it as well. Her investment vehicle gave her 7% growth per annum which was not fantastic by any measure but she was happy with it.

Mr. Prokrass Tinator, her neighbour was a 21-year old as well. He was never taught about saving money, and he always lived for the day. He decided to  live the good life and party till he was 31. At 31 he started to save $300 per month, the same as Ms. Penny Wise and invested it in the same way with 7% growth.

Age Ms. Penny Wise    Mr. Prokrass Tinator
Savings
Assumed Growth Rate @7% p.a. Value Savings Assumed Growth Rate @7% p.a. Value
21  3,600 0  3,600
22 3,600 252  7,452
23 3,600 522 11,574
24 3,600 810 15,984
25 3,600 1,119 20,703
26 3,600 1,449 25,752
27 3,600 1,803 31,154
28 3,600 2,181 36,935
29 3,600 2,585 43,121
30 3,600 3,018 49,739
31 3,482 53,221 3,600  0  3,600
32 3,725 56,946 3,600  252 7,452
33 3,986 60,933 3,600 522 11,574
34 4,265 65,198 3,600 810 15,984
35 4,564 69,762 3,600 1,119 20,703
36 4,883 74,645 3,600 1,449 25,752
37 5,225 79,870 3,600 1,803 31,154
38 5,591 85,461 3,600 2,181 36,935
39 5,982 91,444 3,600 2,585 43,121
40 6,401 97,845 3,600 3,018 49,739
41 6,849 104,694 3,600 3,482 56,821
42 7,329 112,022 3,600 3,977 64,398
43 7,842 119,864 3,600 4,508 72,506
44 8,390 128,254 3,600 5,075 81,182
45 8,978 137,232 3,600 5,683 90,464
46 9,606 146,838 3,600 6,333 100,397
47 10,279 157,117 3,600 7,028 111,025
48 10,998 168,115 3,600 7,772 122,397
49 11,768 179,883 3,600 8,568 134,564
50 12,592 192,475 3,600 9,419 147,584
51 13,473 205,948 3,600 10,331 161,515
52 14,416 220,365 3,600 11,306 176,421
53 15,426 235,790 3,600 12,349 192,370
54 16,505 252,296 3,600 13,466 209,436
55 17,661 269,956 3,600 14,661 227,697
56 18,897 288,853 3,600 15,939 247,235
57 20,220 309,073 3,600 17,306 268,142
58 21,635 330,708 3,600 18,770 290,512
59 23,150 353,858 3,600 20,336 314,448
60 24,770 378,628 3,600 22,011 340,059

As you can see from the table above, he was never able to catchup with Ms. Penny Wise even after saving for three times the period.

When are you going to start using the ‘Power of Regular Savings & Compound Growth’, to your advantage?

About the Author Amit

Amit is an Independent Financial Advisor, based in Dubai since 1997. He is part of the prestigious ‘Million Dollar Round Table’ (MDRT), which is an elite club of the best financial advisors worldwide. He has authored the ‘6-Step Financial Success Guide’, and the book ‘Creating, Preserving, Distributing Wealth’. He helps business owners and professionals ‘Create A Second Income’ through investments.

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