It Does not Take Much to Save for Retirement
You work hard for your money, so it is nice to reward yourself with small, inexpensive treats. Maybe you stop for a double mocha cappuccino on the way to work or download a movie or some songs to enjoy later on. Or you might like to eat out or go to the movies on a regular basis.
It is easy to justify small rewards like these since they deliver a lot of pleasure and generally do not cost that much. But little treats start looking pretty expensive when you add up how much you spend on them in a year.
Cut Back and Save
What if you cut back to four cappuccinos a week instead of five and put the savings in your retirement plan? How much would investing $5 a week amount to over time? Or what if you ate out one less time every week and invested the $16.25 savings in your retirement plan instead? How much would that add up to if you did it consistently?
Actually, small sums invested regularly have the potential to turn into substantial amounts over time. This chart shows the results of investing extra dollars every week for a 30-year period.
The Magic of Compounding
What accounts for this type of impressive growth? In a word, compounding. Here is how compounding works: The money you contribute to your plan is invested for you. Any earnings on your plan investments are reinvested in your account. This gives you a larger pool of money for investment. Every time you contribute to your plan account, you increase the total amount you have invested and the potential benefit from compounding.
Start Small, Save Big
You do not necessarily have to earn a lot of money to lay the groundwork for a financially secure future. But you do need to be committed to making regular, steady investments over time. Cutting back on some of the little extras will help you free up some additional money for investing. Why not look for some extra money to add to your retirement savings plan?
Small Amounts Add Up
Every week, |
Invest the money for 30 years and you potentially could have: |
Cappuccino ($5) |
$32,296 |
Music downloads ($7) |
$45,203 |
Movie ticket ($10) |
$64,577 |
Dinner out ($16.25) |
$104,951 |
These are hypothetical examples used for illustrative purposes only. They assume an 8% average annual investment return (compounded monthly), which is not representative of any particular investment. Actual rates of return cannot be predicted and will fluctuate.
Source: NPI