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Compound Interest ROCKS!
Jakg
Posts: 2,267 Forumite
I'm 17, lets say I retire at 65 - that's 48 years of work ahead or 576 months (yay!).
Lets say I save £42.21 a month - thats £506.52 a year, or about what a good Sky TV package costs.
£42.21 x 12 = £506.52 per year.
£506.52 x 48 = £24,312.96 at the age of 65. A lot, but not really what you could live on for a substantial period of time. Think about it this way - it's enough to get yourself a new Ford Mondeo with a few optional extras
Now, if you were to invest that in a 5% savings account (5% is worse than most accounts pay, so you could beat this easily!)
(calculation done using Excel as you need to work out the interest on the first payment, then the second payment, plus the first, plus the interest etc).
£100,000.55
Yes that's right - you could actually quadrouple your money.
You would cream off £75,687.59 in interest over the years!
Even better, at year 66 you would be able to cream £5,000.03 a year interest off - all from saving £42.21 a month, and you have a £100k nest egg if you need it.
Think about it this way - you've gone from a new Mondeo to a new Ferrari!
Just thought someone else might like this useless bit of info...
If you invested just one more penny a month (£42.21 -> £42.22) you would of paid in an extra £6, but gained an extra £24, or a £1 a year pay-rise when you retire. Just pick up one piece of loose change a month and I can garantee that when you retire you'll cream off £1 more a year when you retire.
If you invested just one more pound a month (£42.21 -> £43.21), you invest around £500 more, but end up with £2k more thanks to interest. Even more - if you retire that extra £1 (or just have half a pint instead of a full pint once a month!) will give £118 more a year when you retire.
Guess who's gonna be saving now?
(no tax or inflation was taken into account
)
EDIT - Do this, and then after 5 years of creaming off the interest you will actually have your original £25k investment back.
Lets say I save £42.21 a month - thats £506.52 a year, or about what a good Sky TV package costs.
£42.21 x 12 = £506.52 per year.
£506.52 x 48 = £24,312.96 at the age of 65. A lot, but not really what you could live on for a substantial period of time. Think about it this way - it's enough to get yourself a new Ford Mondeo with a few optional extras
Now, if you were to invest that in a 5% savings account (5% is worse than most accounts pay, so you could beat this easily!)
(calculation done using Excel as you need to work out the interest on the first payment, then the second payment, plus the first, plus the interest etc).
£100,000.55
Yes that's right - you could actually quadrouple your money.
You would cream off £75,687.59 in interest over the years!
Even better, at year 66 you would be able to cream £5,000.03 a year interest off - all from saving £42.21 a month, and you have a £100k nest egg if you need it.
Think about it this way - you've gone from a new Mondeo to a new Ferrari!
Just thought someone else might like this useless bit of info...
If you invested just one more penny a month (£42.21 -> £42.22) you would of paid in an extra £6, but gained an extra £24, or a £1 a year pay-rise when you retire. Just pick up one piece of loose change a month and I can garantee that when you retire you'll cream off £1 more a year when you retire.
If you invested just one more pound a month (£42.21 -> £43.21), you invest around £500 more, but end up with £2k more thanks to interest. Even more - if you retire that extra £1 (or just have half a pint instead of a full pint once a month!) will give £118 more a year when you retire.
Guess who's gonna be saving now?
(no tax or inflation was taken into account
)EDIT - Do this, and then after 5 years of creaming off the interest you will actually have your original £25k investment back.
Nothing I say represents any past, present or future employer.
0
Comments
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Guess who's gonna be saving now?
Good for you! And you have many years of compounding in front of you. Excellent.(no tax or inflation was taken into account)
That's the kicker, unfortunately. So get your cash into an ISA and think about putting some into the stock market as well, to beat inflation over the long term.0 -
Don't forget that the road through life can also be Rocky.
The principle of saving is a good one to follow but also have a Good Life on the way by spending some.0 -
Inflation is the killer though. My pension that I have just started 'should' leave me with over 1 million by the time I am 60,. however in real terms that won't be anywhere near as cool as it sounds now.
However, you are right compound interest is great. Small amounts can become very large over time.0 -
Ah! The magic of compound interest - takes me back to my insurance selling days. I used to have a chart of someone starting at 21 and saving for 10 years and then leaving the money to compound till 60, and someone starting at 35. It's incredible.
Jen
x0 -
Also, even though i've moved from HSBC to A&L i'm keeping 1p in both my savings and current account just so that if I do ever invent a time-machine, I can go forward a hundred million years and become a double-millionaire Nothing I say represents any past, present or future employer.0
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Yes but you have not included inflation have you.
Maybe you would like an idea of what that would do to your savings.
For example back in the 60's the average wage was about £20 a week (or less)
So you need to divide your £100,000 by 10 to get £10,000.
So yes you will be able to have your Mondeo, but obviously a second hand one about 5 year old.
Saving eh? You can't beat it
:j
:rotfl::rotfl::rotfl:0 -
>no tax or inflation was taken into account<
And means-tested benefits! You're a fool to save when every government will rob you blind - "to each according to their needs, from each according to their ability". NB you're in the 'from' part of that.0 -
So in conclusion I may as well just live on benefits for the rest of my life.
"yay".Nothing I say represents any past, present or future employer.0 -
So in conclusion I may as well just live on benefits for the rest of my life.
"yay".
Definatley and don't forget the final savings killer the Counncil Tax
Here is where compound interest will kill your savings.
It typically rises about 10% *above* inflation.
So lets wack that into the calculator.
Say is if £1,000 now, in 48 years it wiill be....drum rolll.....wait for it......
£48,000 :eek::eek::eek::eek::eek::eek:
AND rising as your pension remains static so it will then rise at about 15% a year in real terms.
You would have to be mad to save!!
0 -
So in conclusion I may as well just live on benefits for the rest of my life.
"yay".
Or increase your rate of saving over time! The killjoys seem to have overlooked the fact that your £100,000 came from the even now minuscule savings of ~£42/month ( I appreciate that it's not so minuscule for a 17-year-old....) Your linking of the amount to a Sky subscription is also astute. You would probably feel at home on the Living Below Your Means board on TMF - LINK.
You sound a sensible sort - don't let anyone put you off saving, it's a brilliant habit to get in to.0
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