I don’t know about you, but I’m kind of keen to retire and live a life of luxury as soon as possible.
That’s going to be my first error, mind you, because saving successfully for your future is all about putting in the hours.
To spell things out we will use the example from BusinessTech, where a fictional character called Bob decides to save R500 a month from the time of his first job.
Using a return of 10%, that is going to add up to around R3,1 million if he calls it quits after 40 years.
Solid, but here’s the mistake too many are making:
If Bob stopped saving after just 30 years then the amount amassed would be only R1,100,000, which is about a third of what it would have been at year 40.
If he stopped saving after 20 years, the value of his savings would be only R380,000, about a third of what it would have been after 30 years. And if he stopped saving after 10 years, he would have only R100,000; less than a third of what he could have had after 20 years.
Compound interest, people, it is your friend.
Here’s another mistake that all too often takes millions off your final retirement package:
If, after ten years, Bob changed jobs and this was his pension fund investment, the Human Resource manager would have called him to ask what he wanted to do with the money in his pension fund.
Most people choose to have the money paid out to hand. Like Bob, they ask for the value of the fund. In Bob’s case, it is R100,000. He may compare that to the potential R3,100,000 that he could have had after 40 years and think that R100,000 is worth nothing in comparison to the potential end value…
But Bob is missing an important point. He will in fact not continue saving at the same rate the next few decades as he has to repeat the first ten-year period. This means that he is not cutting the first ten years of compounding off his money, he will be cutting off the last ten years. In those last ten years the value of his money grows from R1,100,000 to over R3,100,000.
This is a difference of R2,000,000. By spending the R100,000 after ten years, he is fact not losing R100,000 – he is losing the R2,000,000’s worth of growth that he could have had.
Silly Bob.
I’m sure the financially savvy out there managed to stick that out, and it all made sense.
Here’s the thing, though – most of us don’t know how to ensure our money works for us, as best it should, so we enjoy the good life when working for the man finally ends.
I’ll go one further – I don’t want to be in charge, which is why I enlist the help of the professionals at Consequence.
They believe that the consequences of decisions made today will bear fruit over the years, based on the sound principles applied at their inception.
We believe them. It’s peace of mind.
Start thinking about your financial future now –Â don’t be a Bob, be lekker.
[source:businesstech]
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