Forget about location, location, location being the key to a good investment outcome. For now, let’s think of the most important ingredient as being regular, regular, regular! This is the magic of compounding.
A regular savings plan can turn small amounts of money into a sum that can take you closer to your dreams much faster. All that’s needed is time and discipline.
For example, let’s see what happens to an investment starting with just $100 and adding $100 each week from your regular income. Table 1 shows what the investment value would reach after five years and up to twenty-five years. In this example, we have assumed that the investment pays a return of 5% per annum (paid quarterly).
The results show that a regular savings habit can potentially turn small sacrifices into large outcomes.
To budget or not to budget
Think about what you might have to do in order to save $100 per week to add to your investment. Maybe instead of eating out every week, make it a special monthly event. Taking lunch to work is a big saver – or you could cut back on your coffee purchases if you’re a regular at the local café. Review essentials such as your mobile phone plan and utilities to get better deals and direct that extra cash straight to your investment.
It might sound picky, but in return for this self-restraint you can see what can be achieved:
- the $29,000 in 5 years might go towards a deposit on your first home or an overseas holiday;
- the $67,000 in 10 years might contribute to your children’s secondary or tertiary education; or
- the extra $258,000 in 25 years might help you to retire more comfortably or earlier than you thought you could.
Any of these goals would seem to make your small sacrifices extremely worthwhile in the long run.
And remember to write down your financial goals as early as you can because it’s much easier to make those sacrifices if you know what they are helping you to achieve.
Reducing expenses is not the only way to find a spare $100 each week. Another good time to start a savings plan is when you receive an increase in your disposable income from a new job or a pay rise. Before you spend it, send it to savings instead.
The trick is to start soon
Everyone’s ability to save is different. If you can’t save $100 every week, the above figures are still worthy of your attention. For example, if you can save $50 per week simply halve the results in Table 1. Conversely, if your savings capacity is higher, multiply the figures.
The results also demonstrate the effect of time and compounding returns on the value of your investment. The sooner you start, the less you need to save in order to achieve the same outcomes.
We can show you more options that are designed to meet your personal needs and goals. To book an obligation free appointment contact us.
This information is general information only. You should consider the appropriateness of this information with regards to your objectives, financial situation and needs.
GTC Financial Services Pty Ltd ABN 69 596 897 575 is a Corporate Authorised Representative of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523