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Quite a shocking table, right? This set of data was first created by Market Logic, an agency in Florida to show the power of a mathematical geometric series in banking. The idea is called compound interest, which means the interest that you get from your initial savings will bear interest of its own and so on, compounding to a massive amount over time. While many people get the basic idea, a few actually understand just how powerful it is.
Let’s say we have two university students, Lee and Wang. Lee plans to start saving his money from the age of 26, putting $2000 each year until he retires at 65. His friend, Wang, chose to start early and he immediately starts putting in $2000 each year even though he is still 19 years old. At the age of 25, Wang saved his last batch of $2000 and let his savings grow.
If we map out their savings to their point of retirement with interest rate of 10% per annum, just like in the above table, it turns out that Wang will gain more money compared to Lee even though he only saves for seven years. Lee, despite putting in money for 40 years, will earn less. This illustration shows the incredible power of compound interest. Just by starting seven years earlier, Wang can get more money for his retirement while saving money for 33 years less than Lee.
This example cannot emphasize enough how important it is to start saving early, especially while you are still in the university. Indeed, you may not have enough capital to do high volume investments. It is still beneficial that you start with a small amount soon rather than waiting for the ‘right time’ (Note: looking for the ‘right time’ is just an excuse in your head!). Explore all the available investment instruments, learn the risks and returns and select the best plans that suit your financial profile and appetite. When it comes to saving, it is never too young to start!
Quite a shocking table, right? This set of data was first created by Market Logic, an agency in Florida to show the power of a mathematical geometric series in banking. The idea is called compound interest, which means the interest that you get from your initial savings will bear interest of its own and so on, compounding to a massive amount over time. While many people get the basic idea, a few actually understand just how powerful it is.
Let’s say we have two university students, Lee and Wang. Lee plans to start saving his money from the age of 26, putting $2000 each year until he retires at 65. His friend, Wang, chose to start early and he immediately starts putting in $2000 each year even though he is still 19 years old. At the age of 25, Wang saved his last batch of $2000 and let his savings grow.
If we map out their savings to their point of retirement with interest rate of 10% per annum, just like in the above table, it turns out that Wang will gain more money compared to Lee even though he only saves for seven years. Lee, despite putting in money for 40 years, will earn less. This illustration shows the incredible power of compound interest. Just by starting seven years earlier, Wang can get more money for his retirement while saving money for 33 years less than Lee.
This example cannot emphasize enough how important it is to start saving early, especially while you are still in the university. Indeed, you may not have enough capital to do high volume investments. It is still beneficial that you start with a small amount soon rather than waiting for the ‘right time’ (Note: looking for the ‘right time’ is just an excuse in your head!). Explore all the available investment instruments, learn the risks and returns and select the best plans that suit your financial profile and appetite. When it comes to saving, it is never too young to start!
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