In a world where everyone seems to rush things, financial freedom, savings, stability, and comfort are often the most-aimed goals. Although life offers no deadlines, this fast-paced generation exhibits the urgency to achieve these long-term goals as soon as possible.
As such, personal finance and starting your savings journey has become more than a trend, more so that compound interest can do wonders.
What is Compound Interest
Compound interest consists of two parts: interest on the principal amount, and the accumulated interest from previous periods. This concept is not only applicable to loans but also to savings, making it the primary reason to start saving early. Interest on interest, as many call it, enables your savings to grow faster than through the simple interest method, which only accrues interest on the principal amount.
The Importance of Saving Early
Time Can be Your Ally
Saving earlier in life will mean giving your money more time to grow. To illustrate, let’s say you’re investing Php 1,000 today. After 30 years and with a 5% annual interest rate, you should have Php 4,321 already. On the contrary, if you wait 10 years later to invest the same amount, you’ll only grow a maximum of about Php 1,629.
Small Contributions Matter
Many people belittle the impact of small savings, especially for the long haul. But here’s the truth: no matter how little the amount you can set aside and save, you can make it grow through the appropriate channel. The only thing that’s stopping you is your apprehensions. Just start saving, no matter how small it is. Who knows, your P500 monthly savings can be worth a million if you retire.
Saving Foster Discipline
Besides the monetary benefits of saving early, it also builds discipline and control over your finances. While it can be challenging initially, saving can be comfortable and habitual. You might not notice it directly, but you could have already prepared for emergencies, education, leisure, or retirement.
Transcending Barriers
Most of us don’t save, not because we don’t want to, but because we don’t have the capacity. Some suffer from high living costs, unstable or insufficient income, and a fluctuating general economy. When these transpire, we often omit savings from our salary allocations and prioritize other needs. But though these are understandable, we can’t keep it a habit. After all, we should find a way to take some of our proceeds to begin building our savings.
