Ask The Wealth Guy Budgeting

GUIDE: Savings Account – It Pays to Start Early

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When it comes to saving money for your future, it pays to start early.

My Favourite Savings Example

This is my favourite example of the power of compound interest.

Consider the following example:

  • Client A: Sooner – contributes $2,000 / year to a savings plan between the ages of 21 and 35.
  • Client B: Later – contributes $2,000 / years to a savings plan between the ages of 35 and 60.
  • Both earn a 5% net return on their savings.
Age Sooner Later
21 $2,000 $0
22 $2,000 $0
23 $2,000 $0
24 $2,000 $0
25 $2,000 $0
26 $2,000 $0
27 $2,000 $0
28 $2,000 $0
29 $2,000 $0
30 $2,000 $0
31 $0 $0
32 $0 $0
33 $0 $0
34 $0 $0
35 $0 $2,000
36 $0 $2,000
37 $0 $2,000
38 $0 $2,000
39 $0 $2,000
40 $0 $2,000
41 $0 $2,000
42 $0 $2,000
43 $0 $2,000
44 $0 $2,000
45 $0 $2,000
46 $0 $2,000
47 $0 $2,000
48 $0 $2,000
49 $0 $2,000
50 $0 $2,000
51 $0 $2,000
52 $0 $2,000
53 $0 $2,000
54 $0 $2,000
55 $0 $2,000
56 $0 $2,000
57 $0 $2,000
58 $0 $2,000
59 $0 $2,000
60 $0 $2,000
TOTAL $20,000 $52,000

Sooner, has contributed a total of $20,000, while Later has contributed a total of $52,000.

CHART: The Power of Compounding Returns

savings-made-sooner

The end result was that Sooner accumulated $114,000 in savings, while Later accumulated $107,000

The Wealth Guy Signature

Joshua Stega

The Wealth Guy

Joshua Stega is an expert financial adviser and founder of JAS Wealth in Sydney. He specialises in the habits and behaviours of wealth. Joshua has a Masters in Taxation and Financial Planning and is regularly featured in the media

M.TaxFP, LLB(Hons), B.Bus(Acc), FTI, Adv.DipFP, Dip.FP, SMSF Specialist
The information on this blog and website is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision. We recommend you consult a licensed financial adviser in order to assist you with this.

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