Hi, let's talk a little more about building that savings habit and
how you can make that a part of your life.
If you remember the last time we were visiting, that we were talking about
the importance of starting to save now and that it's okay to start small and
save small amounts but as long as we make it regular.
Remember we were talking about putting money into a piggy bank and
what would happen if we put one penny in a piggy bank the first day and
two pennies the second day and three pennies the third day and on.
Just how much would you have at the end of a year if you continued that trend?
I've asked you to write it down to make an estimate.
Let's see how close you were.
The answer is that you would have 667 dollars and 95 cents.
Did you guess that right amount?
Were you over or under?
To me, I'm always surprised that it would add up so quickly in a year.
But that, again, is just an example of how starting small but
starting regularly can make a difference.
The other thing we know from research is that when people start small,
whether you use this penny example or some other mode of getting yourself motivated
that having money building up is motivating in itself.
In overtime, people sort of automatically increase the amount their saving and so
that's why I'm not worried if you start small.
That's fine, just get started.
The other thing that we know from research
is that the way people can save effectively is to put it on automatic.
We want to make it happen regularly and that means you want to set it up.
You don't have to make a decision about every time you need to save money.
For example, a lot of US employers will allow employees to set up
a system where from their paycheck, each paycheck whether its every two weeks or
every month, a certain amount will go directly into their savings account or
into a retirement savings plan rather than going
being deposited into somebody's checking account.
What we see from research is that people who have this type of a system set up
that their accounts grow more than people who have to make that decision every
paycheck whether or not to save money and if you think about it, it makes sense.
If when you get your paycheck you have to sit there and think, do I want to
do something today with the money or shall I save it for a future event?
Most of us are wired so that we're going to go ahead and use that money now.
The immediacy is going to drive us.
So putting it on automatic will let you really work towards those more long
term goals and get that money saved up.
Let's take a look at this with a different amount.
What if you could save $20 per week?
Interesting enough, when surveys are done, most of people say that, yeah,
they could save $20 a week even if they're not doing it right now.
And if we did put $20 a week into an account that was earning 5% return,
in ten years, we'd have almost $14,000.
And if you were saving for
something long term like retirement, you would have almost one 132,000.
Now remember, compounding returns make a difference and
the amount of the compounding return, the rate, makes a difference.
So if we look at somebody who had, instead of 5%,
10% as you can see in this table, the money really adds up.
And so over 40 years, again,
over a half a million dollars if you were putting away just $20 per week.
To me that's motivation.
That's having my money grow and have it work for
me to reach my goal of someday retiring and not being working everyday.