The importance of saving for the long term
You’ll save tomorrow. Making that statement could mean that you spend the next years regretting it. The fact is, the sooner you start saving money, the less money you’ll have to tuck away into a savings or retirement account.
The reason for this is simple. The sooner you put money into the bank, the faster it can grow for you, gradually increasing the amount in your account faster than you could do yourself. The problem is, many people don’t save soon enough and find themselves struggling financially in the long term. How can you avoid this? Understand the value of saving now.
What is compounding interest?
The key concept of saving now is compounding interest. It is the method by which you can take advantage of interest adding up quickly. Here’s a very basic example.
You open a savings account and put £1,000 into it. You are earning interest on the funds as long as they stay in the account. The first few months, you earn interest on that £1,000. Let’s say that you earn £10 of interest the first month. This means you now have £1,010 in your account. Now, the interest is not only building on that original £1,000 you put into the account, but on £1,010. Because you have a higher balance now, even if it is only by a £10 in this case, the interest you earn is larger than it would be if you were still earning interest on that original £1,000.
When this is done on a larger scale and over a longer period of time, you will obviously earn substantially more. In other words, if you know that by the time you retire you need to have £1 million in savings to cover your retirement costs, you have options. You could start at a very young age and tuck away just a few hundred pounds per month. The compounding interest will help you to earn more because there is much more time for it to grow. On the other hand, if you waited until you were 50 years old to do this, you would have to put a significant amount more away simply because there’s no time for interest to grow the balance.
Can you really invest right now?
No matter what your age is or what your financial circumstances are, it is possible to save money in most cases. You can do this in various ways. For example, you can cut out that £3 cup of coffee you pay for each day before work and put that £60 into an account each month. And, to make it even easier, set up automatic payments so the funds go directly from your current account after payday into your savings account. Even £100 or £200 a month can add up significantly over time. And, because it is not in your account to begin with, you don’t have to actually think about saving.
Investing now and saving for the long term is wise. It gives you the cushion you need to avoid having to borrow money for emergencies. It gives you the financial freedom of not having to worry about the unexpected. Work with a financial adviser and ensure you reach your financial goals – and exceed it.
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Mike Coady is an award-winning financial expert and a well-known leader in the financial industry.
Having taken two of his previous firms to Chartered Status in the UK and also achieved the prestigious National IFA of the Year Award – Highly Commended.
Mike is qualified to UK Financial Conduct Authority (FCA) standards, a member of the Chartered Insurance Institute, a Fellow of the Institute of Sales Management (FISM), and a Fellow of the Institute of Directors (FIoD).