Save $1,000 per month for 12 months
Money in $12,000 - Grows to $12,397
Profit only $397 ?
Why so little ? Because some money has only been in for 1 month, some for 2 months, etc. - it has not had enough time to work yet.
Save for 2 years
Save $1,000 per month for 2 years (all figures assume a 6% nett return)
Money in $24,000 - Grows to $24,015
Save for 5 years
Save $1,000 per month for 5 years
Money in $60,000 - Grows to $70,118
Save for 10 years
Save $1,000 per month for 10 years
Money in $120,000 - Grows to $164,700
Save for 20 years
Save $1,000 per month for 20 years
Money in $240,000 - Grows to $464,300
Profit $224,300 - starting from zero and now pretty much doubled !
What about inflation ?
Save $1,000 per month for 20 years and increase the $1,000 a month by 3% annually to combat inflation
Grows to $594,300
Saving failure reason No 1
Takes too long – too many people are not patient enough
Savings Failure Reason No 2
Save to build up an emergency fund – then later on want (but not need) a boat – savings get spent
Saving for car replacement every 3 years – a holiday or cruise on offer looks good – car replacement money gets spent
Saving for retirement – “oh hell, let’s live for today” – retirement savings get spent
All savings pools should be earmarked
· House deposit
· Car replacement
· Holiday fund
It is not complex
It might sound a bit too complex - too many accounts - but stop and think it over.
How much easier would it be when the car needs replacing to have the money in hand, rather than finance at 14% ?
When you have diligently saved your house deposit, then you can divert those savings to paying the mortgage – much easier if you had been used to going without that money beforehand.
An emergency – e.g. illness or job loss – much less stressful to have emergency money in place, and maybe not lose your house either.
A holiday fund – you can spend this on a holiday, and not worry about paying for it later. And if you stick to spending only the amount in hand, no regrets or pain afterwards either.
Saving failure reason No 2
Not earmarking savings and then using the money for other purposes
There are plenty of ways to have cheap holidays in NZ too - freedom camping, DOC camps, and more.
Other things savers need to know
· Use automatic payments to save and soon you won’t miss it
· You must put your money to work - no low interest-bearing accounts
· How averaging works for you & also reduces risk
· The importance of diversification
· The importance of rebalancing
Where to save ?
We have a number of clients saving $500 to $5,000 a month into our investment funds, mostly balanced or growth, they are feeling quietly confident, and are making good headway.
The funds are not contractual so they can start and stop without penalty, or change the amounts at any time.
Some are saving for retirement over and above KiwiSaver, and some are saving to build an emergency fund.
Supplied by Alan Clarke, financial & retirement adviser, & author. His second book is virtually complete, & he also writes regular articles for the media & on line – see www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) FSP26532 & his disclosure statement is available on request and free of charge.