On the Money - Save Early

If you are already saving money,  you can easily put more of your precious dollars in your pocket without doing anything except following this simple rule.  SAVE EARLY.

The concept of save early means that you make your savings deposits at the beginning of the year or month instead of the end of the year or month. Let's look at how much of a difference making a savings deposit at the beginning of every year can make.

Susie has made a deposit of $2500 to her savings account every year for the past 5 years  ( at total of 5 deposits). Her bank pays her interest on her money at a rate of 4% compounded annually.  At the end of the fifth year, she will have her original deposits of $12,500 and the additional interest she made of $1,582.44.

But what if, instead of making her deposits at the beginning of every year like in the previous example,  she made her deposits at the end of each year for 5 years with the same 4% interest rate compounded annually. Her interest earned on her $12,500 saved is much less at $1,040.81.

Susie earned an additional $541.63 simply by making her deposit at the beginning of the year instead of at the end.  Why is that? Susie puts her savings first which allows her money to work harder for her.  In the first example, Susie's first deposit was able to accrue the compounding interest for a full 5 years and her last deposit was able to accrue interest for a full one year.  In the second example, her first deposit made at the end of the year only had the next 4 years to accrue interest and her last deposit at the end of the fifth year had no time to accrue any interest.  The saving early rule applies to monthly deposits as well.  Remember -- always SAVE EARLY.

In a future post, I'll address the second part of this rule which is PAY LATE.  Meanwhile you'll be on the money when  you SAVE EARLY.