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Power of regularity

Many people claim that saving small amounts of money is pointless and they add that you need to put aside large amounts to achieve considerable effects. We should, however, bear in mind that the traditional money boxes, in whose case the amount you saved really played a crucial role, have been ineffective for a long time. Nowadays thanks to the fact that we save money in financial institutions our funds may generate additional profit and small amounts may, in time, transform into large sums. And this may happen thanks to the regularity and compound interest among other factors. Let’s see how crucial the time in saving process may be.

Kate and Ann both have children aged 3. They would like to accumulate some capital for a good start in their children’s adult life. Both women would pay in PLN 36,000 each during the time of saving, but would their results be the same?

Kate intends to pay in PLN 200 to her 15-year savings scheme at the beginning of each month.

Ann is not ready now to start saving, but in 5 years’ time she would pay in PLN 300 to her 10-year savings scheme at the beginning of each month..

Let us assume that Kate and Ann save on the following conditions:

Annual interest rate: 5%
Capitalization of profit: monthly

Saving Legg Mason

In 15 years’ time Kate’s money box may be worth PLN 53 680,53

Ann, on the other side, would have accumulated PLN 46 778,79 in 10 years’ time.

If Ann would like to achieve the same result as Kate, she would have to put aside not PLN 300 but about PLN 344 within her 10 year saving scheme. Her total payments would amount to PLN 41,280 i.e. over 5 thousand Polish zloty more than Kate’s payments.

Kate’s case show that when you save lower amounts, which would affect your budget to a smaller extent, in a longer time, you may achieve a better result than when saving larger amounts in a shorter time.

The above example proves that the lenght of saving period may have a significant influence on the final results. Therefore everyone needs to be aware of the effects of procrastination in the saving process.

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