Exploding Change
by Nikki Willhite
www.allthingsfrugal.com
How saving a little makes a lot through the power
of compound interest
A few years ago my oldest son finished his schooling, and took
his first full time job. Thankfully, he didn't move far, and he was able to come
to dinner each Sunday.
As we sat together at the table, my husband and I felt the
responsibility to give him the wisdom of our years :-) We talked to him about
his finances, and how he should be saving money. We talked about how old his car
was, and how he should be setting aside some money for the time when he would
have to replace it. We told him about the tax advantages of owning his own home,
and the money he would make as his equity grew. He would need to start saving
for that. Then we told him that he should start saving now, while he was young,
for retirement - while he had so many years for compound interest to work in his
favor.
My son politely listened to all of this, and then pretty much
asked us what planet we were from! He had enough trouble just making his rent,
his car payments, and paying back his student loans.
Saving money, especially for the future, can be hard to do. The
results are not immediately evident. It seems like you are getting a lot more
for your money when you make payments - yet have a shiny, new vehicle sitting in
your driveway.
I received a publication a few weeks ago that had a great
example of how effective saving just a little money can be when you are young.
To summarize, it asked, "How much does eating a pizza once a
week cost? Would you believe $250,000?" If you were to put the money spent on
one large pizza each week into a mutual fund with a 9 percent annual return, in
30 years it would be worth a quarter of a million dollars. Unbelievable!
What a great example of the power of compound interest! If you
are young, I know things are tight, but try and find somewhere to save a little
money each week and set it aside. While money doesn't bring happiness, it does
provide for our needs and give us a feeling of security.
Most of us who didn't save enough regret it now, and time is no
longer on our side. If I had to do it over again, I would live in a cheaper
home, save more money on food, clothing or do whatever I needed to do to save
and put aside money each week.
Hindsight is 20/20, but you are wise if you listen
and see the
future through someone else's eyes.