Why Bother Saving Money Now?

Posted on November 28th, 2009 in Finance by

Why Bother Saving Money Now?

 Teen Money Tips – Why bother saving money now?

For many teens whenever they earn or recieve money, they spend it all. Saving money is just not considered cool and is (for most people, especially teens) a difficult thing to do. Some will just say “I don’t want to save” but many will save “Why should I save now, I should leave that until I’m older”. Well today I am going to tell you why you should start saving money now, even if it’s just a little bit. Remember, saving money is fairly low risk compared to investing it in stocks/shares or other things so it will take longer to accumulate.

Basically, you should be saving between 10-20% of everything you earn. For most teens this would be an easy enough amount to save and would not require a massive change in spending habits. Now you might be thinking ’10-20% of everything I earn, that will never be enough!” well in the short term this may be true, but in the long run (and with the help of our friend ‘compounding interest’) it will be. Compounding interest is where you earn interest (basic definition- extra money given to you by your bank for placing money in their accounts,we will cover this topic more later) on top of your interest.

For example – John puts $100 in his bank account at 10% interest per

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month (please note this is a high rate of interest used for illustrative purposes only) By the start of next month his $100 has grown to $110 because of the 10% interest. Next month his $110 has grown to $121 because he has received “compounding interest” (interest on his interest as well as his principal – the amount he originally deposited)

So if you were to put away $30 every month for the next 40 years and it was to grow at 5% P.A (per annum- every year) then by the end of the 40 years you would have $45,662.31. Not enough to retire on but a nice amount anyway for future investments or to go on a retirement holiday with etc. If you were to recieve 10% P.A. compounding your $30 a month investment would grow to $175,266.65 over 40 years!

Now go out and start saving a bit of money each month so that when you get older you don’t have to worry as much about how you can afford to save! If you would like a free compounding interest calculator then visit http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Why Bother Saving Money Now? / Sam

For free advice on savings, investments, wise spending habits, jobs and online income opportunities for teenagers, visit Teen Money Tips today!