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How Compounding Interest Helps You

1 Dec 2014

'A little goes a long way.'

'Just start with five dollars!'

'Put something aside every pay!'

I don't know about you, but I've been hearing variations of these phrases for years. They've always annoyed me, mainly because I'm stuck in a mind-set of instant gratification. If I can buy this thing that I like on credit now, why should I bother to save and have to wait months to get it?

I know that not everyone thinks along these lines, but a good chunk do. No matter what good intentions I have towards saving, it hardly ever ends well. That has to change, and not just for me.

As clich├ęd as it sounds, the earlier you start saving, the better. Ten dollars a week is really not that much, in the grand scheme of things. With compounding interest - earning interest on your interest, as well as your weekly deposits - it can kick start your savings to something truly exceptional. Just like in social media, interest generates interest, and this time, it's what we want to happen!

How, you ask? Let's say you put away ten dollars a week. The www.sorted.org.nz website shows that after five years, you would have saved $2,600, and earned an additional $170 in interest. In another five years, you would have put away the same amount, but the interest earned would be up to $700!

Now that's maths I like to do.

A savings account with a decent interest rate is great, because you literally sit back and watch your money grow. Let the account do all the work! It may not be fast, but it does get there. So start saving today. It really is as easy as pie. Not as tasty, but then we can't have everything, can we?

Talk soon . . .

Money Penny