Is it really that important to start saving early? Honestly – how much difference does it actually make…?

Is it really that important to start saving early? Honestly – how much difference does it actually make…?

You’re sick of it, I know. Everywhere you turn, someone is hawking savings advice. ‘Get into Kiwisaver’, ‘Don’t spend more than you earn’, ‘Start saving early in your life’ blah blah blah… In this blog, we are going to perform a bit of a ‘Mythbusters’ session and see what all the fuss is about regarding saving early.

This exercise involves using financial calculations and you are welcome to check them for yourself on any online financial calculator (just google ‘financial calculator future values’ and have a go yourself).

OK, let’s get started – I will give 3 simple examples and show you the wonderful and wealth enhancing effect of compound interest – the compounding effect on money (or on any form of matter for that fact) where money’s own earnings growth subsequently continues to grow upon itself, causing an exponential growth effect over time. The most valuable component of the compound effect that gives this exponential effect its awesome power is exactly that; time (as you will soon see).

Our first example is Chase – a keen 18 year old who has just left school and has started a plumbing apprenticeship. For simplicity, he earns $630 gross a week ($15.75/hour – current minimum wage)

  • He will therefore receive $510.94 in the hand (presuming he is enrolled in Kiwisaver with initial balance of $0)
  • If he only ever earns this much for the rest of his life and decides to save $100 per week until he is 65, he might expect to retire with…$1.2 Million!
  • If he lives til 95, that may give him $64,000 after tax to live off per year


Our second example takes a young(ish) lady, Rockee, who is now 40 and earns $25 an hour as a PA for an insurance adviser ($1000 a week)

  • Net income is $790.34 in the hand (presuming she is enrolled in Kiwisaver with current balance of $15,000)
  • Assuming she saves $150 a week til 65, she might expect a balance of around $570,000
  • That may only provide her with $28,000 to live off per year
  • In contrast to Chase, she earns significantly more, is saving more, has a bigger Kiwisaver balance at the start BUT because she started just 12 years later, ends up with half as much…

So maybe it might be wise to start saving earlier rather than later…if an apprentice could end up a millionaire doing nothing out of the ordinary…well maybe you could too!

DISCLAIMER: The above example are based on EXPECTED RETURNS. Returns are never guaranteed and past performance does not guarantee future performance. Expected returns in the examples above assume 5% p.a achieved pre-retirement and 3% p.a achieved post-retirement.

The above comments are general in nature and DO NOT constitute financial advice. Before making any decision, we recommend you consult a financial planner or investment adviser to take into account your particular investment objectives, financial situation and individual needs. A full disclosure statement is available on request and free of charge.

Author: patrick

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