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Why You Should Start Saving Right Now- $100 a Month Becomes $407,915 After 46 Years


savingsThe earlier you save, the more your money compounds.

If you started saving and investing $100 at the age of 20 years old and compound this at 7% over 46 years until you are 65 years old, you would have accumulated $407,915.42.

That is for a total sum saved of $55,200.

To see how early saving is important, I did up a simple excel sheet which you can download here. Interest on investment is fixed at 7% unless you change the formula for the excel file.

I only wish that investment interest earned can be that constant :)

In it, the yellow shaded cells are where you can enter the different monthly sums you plan to invest.

Investor A realises the importance of investing and starts early, at age 20 and invest $100 each month until he retires.

Investor B consumes his way around, enjoying life and only starts to invest at age 30, 10 years later. He saves and invests a bigger sum $150 until he reaches the investment age of 65.

Investor C is not financial savvy and keeps putting off retirement planning. He starts a family and doesn’t start planning for it till the grand old age of 40 years old. He puts in 3 times the amount of investor A, dumping $300 to invest till he reaches retirement age.

What amount does Investor B and C ends up with?

Investor B has $291,546.84.

Investor C has $264,307.33.

So the later you start to save and invest, the less you’d end up with, even if you put in more money later. If Investor B starts late and wants to end up with an amount bigger than what A ends up with, he’d have to cough up around $210, more than 2 times the amount A puts up with to get slightly more than A.

For Investor C, to surpass Investor A, he’d have to cough up with $464 per month if he start saving and investing 20 years later. That is 4.64 times more than investor A.

In case you are interested in the savings calculator to see how much you need to save each month and also change the assumed interest earned (just don’t put 20% and think you are a Warren Buffett), you can go and download the excel file here.

Want financial freedom? Be prepared to put aside money to save and invest and delay gratification to attain your financial goals.



1. Savings Calculator by Vertex42

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la papillion said...
March 24, 2010 at 12:15 AM  

Hi lemi,

I think it's a bit optimistic at 7%. I would go no more than 5%, to account for years where one's capital is actually eroded.

I'll rather be conservative than aggressive in my planning.

Anyhow, the idea to save is still fundamentally important. The interest earned will help you to save more and the interest's interest will also save more so that....you get the drift :)

Lemizeraq said...
March 24, 2010 at 9:26 PM  

Hi LP,

Thanks for visiting.

Yeah, 7% might be a tad optimistic, so it looks like my nick shouldn't be Lemizeraq but Optimist:)

Gotta have a best case and worst case scenarios I guess. Time for me to work on my worst case and work around to see what are the estimates.

Yeah, the snowball effect of compounding interest ....


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