How Saving Works

You can’t depend on winning the lottery. What’s shocking is that so many people still think the only way to get rich is the lottery.

Many people are only concerned about today and don’t think about tomorrow. You quite literally can’t afford to think that way.

The idea of being “old” is clearly distant to anyone at your age. The irony is that the earlier you begin saving for retirement, the more money you’ll have when you actually retire.

The truth is that the grand majority of retirement-age Americans live paycheck to paycheck, and cannot write a check for $600. The reason? They don’t have that much in our checking account.

The secret to saving isn’t so much a secret: it lies in consistent, stubborn saving for a long period of time. Real wealth is created from a progressive, long-term campaign of saving a little bit a lot of the time.

Did you think it was any other way than that?

The way this happens is a principle called “compound interest”. Compound interest is your greatest ally, your best friend, your sweetest force in gaining long-term wealth and security. Live by it.

An example: say you spend $50 per month on buying DVD’s. Say you don’t spend that money on DVD’s and rent them instead. And say you start saving that $50 in an IRA (Individual Retirement Account), every month (assuming 10% interest).

In thirty seven years (from, say, the age of 18 to the age of 55), you’ll have $200,000. And the grand majority that money you didn’t actually deposit: it was interest generated from the money that you did deposit: it’s from compound interest.

Let’s say you would rather put your savings to work in a different way. Perhaps you are saving for a specific item, like that car. Save up enough money in your savings account to buy CD (Certificate of Deposit) at the bank, continue to buy another and another. When each one comes due, invest it again or roll it with another into a larger CD. Longer CD investments, like 12 months will provide good interest. Banks have other investment too: talk to a professional about your goals.

Calculator: Compound Savings Calculator