Over 30 years in the money business I’ve seen plenty of change but the basic rules of investing have remained the same. One of my favourite maxims for making money has always been ‘save little, save often’. It’s a simple yet remarkably powerful strategy, and the best bit is that just about all of us can achieve results with a slow and steady approach.
Achieving financial security doesn’t have to involve saving a fortune every week. You’d be surprised at what you can achieve by tucking a little bit of money away on a regular basis.
If you save $2 a day during your working life, how much will you have by age 65? Well, if you average a return of 8% a year on your savings, which is quite possible over the long term if those savings are invested in, say, quality shares, $2 a day saved from age 18 to age 65 should be worth around $400,000.
If you could save $5 a day, you’d accumulate about $1 million. No miracles, no magic or silly numbers. It’s just a sensible, simple savings strategy helped along with the benefit of compound interest.
Okay, lots of us aren’t 18 anymore. But that doesn’t mean you can’t still achieve worthwhile results with regular saving. And when you’re older there’s a good chance you can afford to save more than $2 a day.
So let’s see how it can work. If you save $5 a day, in 25 years’ time with a return of 8% per annum you should have accumulated around $150,000. Make it $10 a day and you could notch up almost $300,000. Even if you only save for five years, $10 a day would grow to $23,000.
Getting started on a savings regime is easy. Take a look at your household budget to work out what you can afford to put away each week, month or fortnight. Then think about setting up a separate savings account dedicated to your nest egg.
Online banking makes it very easy to transfer funds from your regular account to a high interest account, and comparison websites like ratecity.com.au show a range of available savings accounts and the current rate your money can earn.
As your savings start to grow, the cash can be used to kick start a managed fund. This will give you access to a wide variety of investments – with the option to choose from the likes of a share-based fund, a property fund or a balanced fund that has underlying investments spread across a number of asset classes. There are plenty of managed funds that require an opening investment of just $1,000.
How much you can comfortably save on a regular basis will depend on your personal circumstances. The key point is that while the amount you save is important, it is the commitment to regular saving that makes the difference.