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Tap into the power of saving and earning interest

27 Jul 2020

Sometimes, as we go about our busy daily lives and all the commitments they include, it seems easier to put off saving or investing until we feel our financial situation is more stable. Whether you are just starting out in your career or have a few years of work behind you, it's never too early or too late to start saving, even a little. Now is always the best time – and the sooner the better. Here's why:

Time and interest

While money may be tight, the sooner you start, the more you have the advantage of time on your side. The key word here is time – by investing your money as young as possible, you have the ability to grow your investment a lot by reinvesting the earnings – and the interest you earn on your money - over time. This is where the power of compound interest comes in. With each month you stay invested, your money earns interest, which is added to your total. The interest is compounded because the interest will then earn more interest, helping your savings to grow even faster.

How a small amount can grow into something substantial over time*

Thabo is 25 when he starts investing his money. Each month without fail, Thabo invests R100 in a unit trust. He makes sure he does this before spending on things like clothes, takeaways or eating out. Thabo's money grows at a rate of 10% a year.

In 35 years' time, his investment is worth more than R340 000. The money Thabo actually invested over this time was only R42 000. The rest - almost R300 000 - came from compound interest growth.

*This is a fictitious example to explain the concept and value of compound interest.

You can take on more risk

Your age influences how much risk you can take on. Young people, with many years of earnings ahead of them, can usually take on more risk in their investments than older people close to retirement. The more risk you take on, the higher your investment returns should be over a period of time. But remember that the amount of risk you take on also depends on your personal circumstances and your budget.

Start now, and stick to it

Well-planned investments, started early, don't only provide savings for retirement. They can also provide you with an income throughout the life of the investment. The earlier you start, the better. Be disciplined and consistent, and speak to your Financial Adviser to ensure you're invested in something that works for you.

Start investing today

Now is the time to start getting your savings and investments on track so that you can be better prepared for those everyday expenses, unplanned life events and your future. The earlier you start, the better.

Jean Folger, '5 advantages of investing in your 20s'. Investopedia

I know it's a fictitious example but 12% per year for 35 years is highly unlikely in the current world. Can leave as is, or use a lower value, e.g. 10%, which gives "more than R340 000" and "almost R300 000" in the paragraph. But the values are correct here as they stand.

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