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As a general rule, spending money is far more fun than saving money.
In the short term, at least.
Fast forward 40 or so years, and there’s a decent chance many of us will be looking back at some of our spending habits in our 20s and 30s and wishing we had done things a little differently.
There really is no time like the present to speak to a financial advisor about setting the wheels in motion for your future financial planning.
I’m sure they’d be able to explain the ‘rule of 72’ to you in great detail, but we’ll use Investopedia below:
The Rule of 72 is a simplified formula that calculates how long it’ll take for an investment to double in value, based on its rate of return.
The Rule of 72 applies to compounded interest rates and is reasonably accurate for interest rates that fall in the range of 6% and 10%.
Essentially, you take 72 and divide it by the percentage return you expect, and you’ll have a good idea of how long it will take you to double your money.
An investment yielding a return of 6% will therefore take 12 years to double, and one yielding 9% would take eight years to double.
If that cash sitting idle in your account is getting around 3% or 4%, it could take more than 20 years to double.
Understanding the above can help with selecting which potential risk versus reward factors you want to use for various investments.
The rule of 72, as laid out above, doesn’t take into account the value of inflation, either, which is why it’s so important to start saving early and start saving wisely.
Speaking to IOL, portfolio manager Mike van der Westhuizen touched on that fact:
There are many perks to starting your investment journey as early as possible and speaking to a registered financial advisor is always encouraged…
If you start investing R200 a month when you are 25 and you stopped at 35, you would make better returns over your lifetime than someone who started with R200 a month at age 35 and carried on paying for the rest of his or her life (assuming the same investment returns). It comes down to the concept of compound returns – money makes money.
Starting out on your financial planning journey can seem daunting, but as with many things, the process often starts with asking for help.
The consequences of decisions made today will bear fruit over the years, based on the sound principles applied at their inception, which is something Consequence Private Wealth understands very well.
Ultimately, it’s good to understand the rule of 72, and it’s even better to enlist the help of professionals to make it work in your favour.
[sources:investopedia&iol]
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