Time Value of Money (Why You Should Start Saving Now)
Money today is worth more than money tomorrow - an aphorism that should be THE saver’s guide at all stages of life.
Conversations around personal finance can be agonizing for most people. Do you find yourself avoiding questions that should be commonplace, questions like “how much should I be saving?” Or even “is it too early or too late for me to start saving?”
Keep reading for an introduction into the Time Value of Money and why you should start saving now.
Time Value of Money
The Time Value of Money in finance states that money available today is worth more than the same amount in the future. Money earns interest over time, so it is more valuable now than later. When thinking about saving, that concept should come into play.
First, let’s examine a few key benefits of saving as early as possible. The sooner you start putting funds into your savings, the more time your money has to grow and compound over time.
Here's an example to illustrate how compound interest works:
Suppose you deposit $5,000 in a savings account that pays an annual interest rate of 0.05%. At the end of the first year, you would have earned $250 in interest, bringing your balance to $5,250. If you leave the interest in the account, it will earn interest in the second year as well.
At the end of the second year, the interest earned would be calculated not only on the initial deposit of $5,000, but also on the interest earned in the first year, i.e., $250. This means that the interest earned in the second year would be 0.05% of $5,250, which is $262.50, bringing the total balance to $5,512.50.
How Early Should I Start to Save?
It is always early enough to start saving. There are certainly benefits to putting money into your savings during your teens versus your late forties or fifties.
An advantage of saving money is that it provides financial security and peace of mind. There will be more flexibility and freedom to handle unexpected expenses or emergencies without dipping into credit cards or loans. You will have a sense of security for the future, knowing that you have a nest egg for your retirement, children's education, or other important goals.
If you haven’t started saving yet, don’t despair. It is never too late to start. So, start putting away money now, no matter how small the amount, and watch your savings grow over time.
Saving is made easier with Nikkei and Mabuhay Credit Union. Whether you're planning on putting money away for a rainy day or preparing for a life-changing event, we have a variety of solutions to help you reach your goals.
For more information, visit www.nikkeicu.org or call 866.4NIKKEI ext. 1900 or 888.MABUHAY ext. 2300.