The Squire’s Core Belief #2 – Incremental Changes Add Up
Saving was something I did when I knew what it was going to be spent on. College, a car, a house, music, and so on. After I graduated, I didn’t have anything that I needed to save for. I knew that I was not going to be rich. With my bachelor’s degree in arts, I could tell I would be able to get a middle class job, I would receive small raises from time to time, and my goal would be to retire around sixty five, or possibly a few years earlier if I was lucky. When I finally moved into my own place, received my first paycheck, and paid all my bills, I looked at what was left, and realized I was going to be in it for the long haul. My rent and expenses would probably increase at the same rate as my wage. Now I knew why so many people worked their whole life and saved up just enough to supplement social security when they couldn’t work any longer.
I wasn’t a math major, but I understood numbers well enough, and didn’t need anybody to explain to me that I would need to save some amount of money by the time I turned sixty five. Since this was forty plus years away, and I was currently spending everything I earned, saving didn’t have a purpose to me at this point. I figured there was no way to tell how much to save, and this was something I could start worrying about in my fifties and sixties when it would be more relevant.
When chatting with my friend over the coming months and years, he always seemed open to talking about the subject of personal finance, which was refreshing. This isn’t to say that people were not willing to share advice, or even their own stories. It just didn’t seem appropriate to talk about personal finances with others.
I enjoyed talking about this subject openly, and started reading recommended books too. Although the thought of saving and investing money into the market seemed like a good idea, this didn’t seem doable for me. It wasn’t until my employer started (or when I realized they were) automatically investing 3% of our pay toward a 401k account, and then matching it (giving us an additional 3% extra) that I realized I had an opportunity to save toward my future. I saw the money start to grow inside of this account, and with my friend’s encouragement and help, I began to understand how investing works. I listed out and looked up what each mutual fund was made up of, and moved the money to different funds based on my reading and after talking with my friend. Over the next few years and with several small raises, this account started to grow. By the time I got married in my late 20s, I felt inspired and knowledgeable enough to to invest money that wasn’t going toward our house fund.
We started to keep track of our investment accounts, and saw that these small incremental investments were adding up. When I looked at simple compounding calculators and eventually started to plug numbers into spreadsheets, I saw that over a long period of time, these incremental changes would add up to way more than I thought possible.
It took me many years and finally watching my own money grow to understand the potential of long term growth with just small changes.
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Reader Questions
- Have you plugged your current savings into a compounding calculator?
- Have you tried changing the savings or rate of return slightly?
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