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Category:  Money

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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.


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Category:  Money

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