Saving for the future can be overwhelming. With so many competing priorities it feels like most of us just don’t have enough money to go around. When we have bills to pay, children to raise, and other obligations, our budgets can get tight fast.
Immediate financial responsibilities start crowding out important financial opportunities, and it’s tempting to put saving on hold.
We tell ourselves that planning for the future can wait. But that’s a mistake. In fact, if you wait to save for the future, you’re leaving money on the table.
When it comes to saving, there are 3 important things you need to do.
1. Start saving now.
The sooner you start saving, the more you can leverage the power of compound interest. Let’s say you have an investment account with a $5,000 balance that earns 8% annual interest. At the end of the first year, the account balance will be $5,400. At the end of the second year, it’ll be $5,832, earning you $32 more than you earned in year one. That’s because in year two, you earned interest on your principle plus the $400 in interest from year one.
That may not sound like much, but the magic of compound interest is that its growth becomes more dramatic over time. The longer you save, the quicker your balance grows. That’s why, no matter what stage of life you’re in, it’s important to start saving now.
2. Don’t get discouraged.
Maybe you’re just beginning your career and it seems like the amount you can save isn’t enough to make an impact. Or you might be well-established, but didn’t prioritize saving when you were younger and now it seems too late.
Whatever your situation, don’t get discouraged. Don’t get caught up in mistakes you’ve made or the limitations of your available resources. Do what you can right now by saving any extra money you have.
The magic of compound interest is that its growth becomes more dramatic over time.
3. Stick with it.
Once you start saving, be consistent. That consistency will pay off over time as compound interest multiplies.
Let’s go back to that account that started with a $5,000 balance and earned 8% interest annually. If you consistently contributed $150 each month, it would be worth $171,468 after 25 years. Only $50,000 of that is money you put into the account. That means that 70% of that final $171,468 is interest generated on the account.
Once you start saving, be consistent. By saving only $150 per month with an initial investment of $5,000, you can more than triple your investment over the course of 25 years on an account that earns 8% interest annually.
Wherever you are in life, start saving for the future now. You may look at your budget and think that you can’t afford to save. But the truth is, you can’t afford not to.
Interested in saving for retirement? Check out my previous article “Smart Start for your Retirement Savings.” Need to prepare for college? Find vehicles for your college savings in “The Sooner the Better: Simple Ways to Save for College.”
If you have questions about your financial future, click the Needs Analysis button at the top of this page to get started, or contact me directly here.