One thing I knew about when I was younger, but sadly unable to take advantage of in any meaningful way was the power of compounding. If you have a job and and what we Australians call a superannuation account (or a 401k in American talk) one thing you can do to make a huge difference in your old age is to try and put a little extra in your retirement savings account.
HOW COMPOUNDING CAN MULTIPLY YOUR SAVINGS
The power of compounding means that if you were say under 20 and you worked till you turned 65 (which lets face it most of us will) every dollar you you put in at 20 or under will be worth $8 by the time you retire. This is based on a 5% per annum growth in your super fund. 5% is nothing special either. In Australia the average returns are meant to be closer around 7%. Obviously some funds will do better than others but a $1 invested before you are 20 could result in $16 in your balance if you averaged 7%. Lets say you went really hard on this before you turned 20 and put in $10,000 you could turn that $10000 into $160000.
Anything you do before the age of 35 will at least quadruple as well. It’s definitely well worth while trying to dump as much as you can into it as early as you can.
This rule follows true not only for your retirement savings account, but really any money you invest anywhere that gets a return of at least 5%. The share market, your savings account, your retirement fund could all do this too.
THE END RESULT
This is definitely an angle I’d advise spending some time looking at. A good choice in either your savings account or retirement account (Or even the share market) at any point that you invest could pay huge dividends on your retirement income later in life. This is something I’m looking at now myself. A huge part of attempting side hustles is to put some money away for my rapidly approaching old age. It’s worth googling your fund to see how they’ve performed historically. The difference between 5% and 7% returns are huge. If you choose a fund that generates closer to 9% you could really do well. In my humble opinion the interest returns are the biggest factor. Also pay attention to the fees your fund charges too. Mathematically every 2% you gain above 5% could double your accrued savings on early invested funds. two people putting the same amount away each week could have very different outcomes at 65 if you start early.
Don’t believe me? Try this compound interest calculator and run a few figures through there yourself. See what you can come up with. Try a few different scenarios. The Figures at the end may astonish you. This calculator also lets you plot out a savings plan and see where you’d end up.
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