I cannot stress much more the importance of saving if you want to create wealth for yourself. Save and Invest is one good wealth creation strategy that you can easily adopt. The reason you save is so that you can let the money work harder for you. As a start, you work hard for money. But up to a stage when you have accumulated some saving, you have to let the money work for you.
Allow me to show you how saving can work wonders for you. Let me introduce to you the concept called the "Power of Compounding Interest". This comes about because over a long period of time, you will actually experience your money feeding on itself, earning you additional dollar that will accumulate into sizable amount.
Through investing, you can actually double your money over a period of time. How long that is will depend on your rate of return.
If your rate of return is 2%, then it takes 36 years to double your money. Whereas if your rate of return is 7%, it doubles every 10 years.
To illustrate, let's say you have an initial investment of $100k.
If this is invested at a return rate of 2%, in 36 years, your money would have reached $204k.
If this is invested at a return rate of 7%, it will double every 10 years and in 36 years time, your money would have reached $1.1 million.
Which one do you prefer?
So the lesson learnt today is: Do not just leave your money in the bank. You will be missing a lot if you do. Let your money work harder for you.
For those interested to know When? you will double your money with a given rate of return, use this formula. Take 72 and divide it by rate of return (without the %). For example, if I divide 72 by 2, I get 36. This means when you invest your money at a return rate of 2%, it takes 36 years to double your money. Similarly, if your rate of return is 5%, then it takes (72/5) 14.4 years to double your money.
In addition, if you want to prove that it really takes 36 years to double your money for a given rate of 2%, use the future value (FV) formula in Microsoft Excel.
I hope you have learnt something today.