Why is it so hard to save? Part of it is because people don’t know how to save (that’s what this site is for). But a lot of it has to do with the fact that our brains aren’t wired to save. Our ancestors didn’t survive by saving for the future. They needed to eat, like right away. They also didn’t live very long with sabre-tooth tigers running around, so there was no point in saving anyways. I get my history from the Flintstones, so please don’t quote me on any of this.
Gaining Money is the Opposite of Losing Weight
It’s interesting, but saving is the exact opposite of something else that’s difficult, namely losing weight. When you try to lose weight, it’s easy at first. The first few pounds can come off with a few minor changes to diet or exercise. But after a while, you plateau. Then it feels like nothing works. If you get discouraged and fall back to old habits, the weight comes right back on, and it’s like you never even dieted.
With saving, it’s the most difficult in the beginning. What little you save doesn’t amount to much, or you can barely put a dent in your debt. Seeing little improvement, people get frustrated and give up. But the great thing about saving is that even though the gains are small at first, the benefits increase over time. This is because of the magic of compound interest. And once you get to a certain point, you can stop saving but your savings will keep on growing!
The Magic of Compound Interest
If you saved $100/month, earning 6% interest, you would have a little over $1,200 at the end of the year. $1,200 isn’t nothing, but you’re not popping bottles either (unless it’s soda). You can’t retire on $1,200 and that’s not enough to get most people out of debt. The other problem is that even though it’s not much, it’s also difficult for some people to save that much. Especially in an environment where wages aren’t going up but everything is getting more expensive.
However, here’s the big positive of saving and it comes courtesy of the magic of compound interest. If you save $100 a month for 30 years, you’ll have just over $100,000! Assuming no interest earned, you would have just $36,000. The power of interest and time combined gets you that extra $64,000.
Make Your Money Work for You
Again, saving $100/month isn’t easy, let alone for 30 years. So let’s say you do it for 10 years, and then you stop saving completely. Still assuming 6% interest, you would have $54,000 after 30 years. Not bad consider you only saved $12,000.
This is what I meant when I said that even after you stop, your savings will continue to grow. This is why the rich keep getting richer. If you had $10 million growing at 6%, you would make $600,000 a year!
I know saving isn’t easy. But this highlights how important it is to save early in life. It’s hard at first, but if you continue long enough, other forces take over and it’ll grow on its own.