Don’t Think About It, Just Start Saving Now

While I’m away for the week on business I have some guest authors filling the void. Today’s topic is brought to you by Danny from MoneySocket.com. Money Socket is about building wealth with just a few fundamental principles. If you haven’t been there already, go take a look at how easy it is to start building wealth today. Better yet, subscribe to the feed to ensure you don’t miss any great tips.

Most of us know by now that compounding interest is a very powerful tool if you give it some time to work. Saving $1 today is worth a lot more thirty years from now. However, a lot of people I come across often talk about saving money and investing but when I ask them about it at a later time, I find out that they haven’t started. I ask them why and the most common answer is I just haven’t gotten around to it because I have all these other expenses. What we don’t often notice is that everyday life gets in the way of long term goals and the next thing you know, ten years have gone by and you still haven’t even taken the first step to your savings goals.

The Ten Year Difference

Let’s look at the impact that ten years can make on your overall savings or investments. For the sake of this example, we’ll ignore taxes. Let’s say John and Stan both want to retire in 30 years. John has a lot of expenses including a larger house and a nicer car than Stan. Because of this, John pretty much has no savings left each month after the bills are paid. Ten years from now, after realizing that he needs to get around to saving money, he finally cuts down on expenses and starts saving and investing. He puts away $800 a month into mutual fund that has a 10% annual return. When retirement comes 30 years from today, he would have $579,189. This is after 20 years of compounding interest.

Stan however, starts saving and investing $800 a month today and continues to do so for the next 30 years. At the end of 30 years, Stan would have $1,663,434. Because Stan started ten years earlier, he has almost three times the money John does. He started 33% earlier than John but ends up with 65% more money for retirement. Not fair right? This is because in compounding interest, the later years are the most powerful since the numbers are much larger. This means you need to start as soon as possible, preferably now.

Just do it

Nike had a point with that catchy slogan. When it comes to saving money for the future, you just have to do it. You have to find a way. Another excuse I hear is I don’t know much about investing, I want to learn more before I start. Fair enough. In that case, you don’t have to get aggressive and start getting into stocks and bonds quite yet. At least open an e-savings account and start saving there. Most pay around 5% APY nowadays, so put your money in there first and think about investing later. At least you’re earning something in the mean time.

Here are some ways to get started

  1. Practice forced savings: Set up automatic transfers into an e-savings account, or mutual fund so you’re forcing yourself to save every month.
  2. Stop living for the moment: You don’t need the big house, expensive car or fancy stuff. Cut down on your monthly expenditures and invest it, your future self will thank you.
  3. Try to build another stream of income with a part time gig like an internet or eBay business. Even if you make $500 extra dollars a month, invest that.
  4. Don’t just read about this stuff, go out and do it.

Incoming search terms:

  • saving $800 month mutual fund


Filed Under: Personal Finance

About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.

7 comments
Minimum Wage
Minimum Wage

Direct deposit account? Surely you jest!

My employer releases paychecks at or after 5pm, thereby affording himself at least a weekend worth of float.

We're NEVER gonna see direct deposit where I work because it would eliminate the float.

j2r
j2r

best way is to setup automatic transfers from your direct deposit account to a separate account

start small with $25 or $50 and go from there.

Minimum Wage
Minimum Wage

Stan saves and invests $800 a month. That's close to what I take home a month. How much should I be saving and investing?

Minimum Wage
Minimum Wage

I tried it a couple times and never got used to it. It worked for a few months until I started getting utility shutoff notices because after paying myself first I didn't have enough money left for food, rent, and utilities.

dong
dong

The funny thing is when you save, you usually don't miss it...

Jay Wilson
Jay Wilson

I have to admit that I've been guilty of the delayed savings mentality until very recently - now I wish I wouldve started sooner. But I guess at 33, it's now or never!

MoneyNing
MoneyNing

Just get used to it and you won't feel much of a difference other than the happiness when you can retire earlier than your peers and supervisors.

More in Personal Finance (135 of 193 articles)


Raise your hand if you spent too much money over the last holiday season or if you weren't able to buy the gifts you wanted ...