The Number 1 Reason to Start Saving Money NOW
March 12th, 2007 by Remon
The younger you are, the more important it is to realize the largest benefit of saving money; compound growth.
What is compound growth?
Compound growth, is growth over growth. When using a savings accounts, we talk about compound interest, which is interest over interest. Say you have $100 now, you get 5% interest making your total $105. The next year you get interest over the original $100 and over the $5 received interest. That is compound growth.
It doesn’t matter if you put your money in a savings account or start investing with it, as long as you make your money work for you. If you’re not putting away money for your retirement right now, you’re missing out, you’re missing out BIG.
I’m not sure but I believe the average internet savings account currently gives you a 5% interest rate, let’s see what happens with $100 saved now, and $100 saved in 2017. Both calculations end in 2040, which I guess is close to retirement age for the average reader of this blog. Interest is calculated 12 times a year.
$100 now, $500+ in 33 years
$100 saved right now, at 5% interest a year will grow to $518.92 in 33 years. Not too shabby.
$100 saved in 2017, at 5% interest a year will grow to $315.07 by 2040. Hmm…
That’s a $203.85 difference on every $100 you save right now. Let’s see what happens when you start putting away $250 a month right now for 30 years, and $250 a month for 20 years.
$250/mo at 5%
$250 a month, at 5% a year will grow to $208,931.59 in 30 years. Not bad considering you “only” put $90,000 in.
$250 a month, at 5% a year will grow to $103,186.58 in 20 years. That’s over $105k less then when you started saving 10 years earlier.
Are you seeing a pattern here? That’s the power of compound growth, and the above examples are only at a 5% yearly interest rate. Let me show you one more example, at 10% yearly growth, which you should be able to reach with mutual funds or stocks.
10% Mutual funds calculation
$250 a month, at 10% a year will grow to $569,831.33 in 30 years. Nice!
$250 a month, at 10% a year will grow to $191,424.23 in 20 years. Ouch!
As you can see from the example it’s time to start saving for retirement right now. Every year, every month you don’t save or invest for your retirement (or other goal) will cost you a lot of money in compound growth/interest.
Save as much as you can, every dollar counts. The more you save now, the more money you’ll have later. Too many people tell theirselves to start saving soon, but they don’t do it for years until it’s too late to really reap the profits from it.
Young people often don’t care much about saving for the future, there are many years before retirment so why should they care about it right now? Because you’re losing money that’s why! Compound growth is an amazing thing, and you should use it to the fullest. The younger you are, the more time your money has to grow. I could put up dozens more examples but I think my point is clear, save now, spend later.
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I’m 16 years old and I have been a working woman since the early age of 14. My parents dont pay for much of my things besides groceries. Car insurance, clothes, shampoo, toothpaste, ect. are all my responsibilities. I make JUST enough to pay for these expenses but because i am still in high school and i am limited to 30 hours a week i need to find other ways to make money or put the little money i do have left into some sort of account for it to grow. I want to have about $10,000 saved up by the time i am 18 so i will be able to support myself on my own completly. i have 2 jobs at the moment, i work at a craft store ($7.25/HR) during the week and a hair salon ($10/HR + tips) on saturdays. Am i on the right track to be sucessful? for a 16 year old i think im doing quite well, i just want something to show for the hard work i am doing. I never want to have to worry about financial situations when i am in college and in the future.
thank you!
Hi Olivia,
You’re definately on the right track, however your goal of $10,000 by the time you’re 18 has a pretty short timespan. I don’t know how much you’ve saved up already, or how much money you’ve got left every month so I can’t give you a decent answer.
Feel free to email me with more information. To be exact, I need to know how much you’ve saved already, how much you earn monthly and how much you’ve got left every month. Include as much information as you’re willing to share. If you email me I’ll write a post about it.
-Remon