Standard Bank Blog

It’s often called the miracle of compound interest: interest that is paid each year increases the amount on which interest is calculated the next year, a phenomenon that can lead to huge growth over time.

The key word here is time, and that means that the earlier you start saving, the better. For young people who are struggling to pay off student loans or buy a home, putting money aside for the future seems not only impossible, but unnecessary: after all, you’ve got years and years to save, and it will be easier down the road when you’re making more money.

But that kind of thinking can cost you. Imagine a 20-year-old who saves $50 a month every month, either in a 401(k) or a money market fund earning 6% interest. At 65, she will have $138,489. But her brother, who likes to drive a new car every year, doesn’t start saving until he’s 35. His $50 monthly savings will add up to only $50,477 when he reaches 65. Her actual contributions total $9000 more than his, but she ends up with over $88,000 more. Think she’ll let him borrow her sports car once in a while?

OK, now we know why we should start saving—the next question is how. First rule: if your employer offers a 401(k), enroll now. It’s much easier to save when the money is automatically deducted from your paycheck. And if you are one of the lucky ones whose plans include an employer match, make the effort to sign up for the maximum deduction—why pass up free money?

We all know we should kick the latte habit and make coffee at home, brown-bag it instead of spending big bucks on lunch, and walk or take the bus instead of hopping into a cab.  But here are some more saving ideas you may not have thought of:

Do you have optional eye insurance through your employer?  Do you wonder if you are getting your money's worth?  Recently I have been wondering the same thing.  I scratched my lenses about a week ago and was therefore forced to order new lenses.  Lucky for me I was eligible for new ones on my insurance.  Unfortunately I found that it was still going to cost me a pile of money.  This is when I started doing the math and found that maybe paying for my optional eye insurance was not the smartest financial decision.