You’re young, responsibility-free and living the life in Asia. Saving can wait, right? Well, actually, you might want to reconsider. We look at the BIG reason why saving now is the smart thing to do: compound interest.
Saving is boring… or is it?
We’ve met a lot of teachers and most find the teaching and the travelling easy, it’s the saving part that they struggle with!
Often, they don’t see the point. Saving is boring…
But what if I told you that saving just $300 a month while in your 20s, could make you a millionaire by the time you retire?
Maybe saving isn’t so boring after all!
This is not the far-fetched dream of a fantasist. It’s financial reality for those disciplined enough to save early on. Read on to find out how it’s done.
The magic of compound interest
Compound interest is free money, and who doesn’t like a freebie?
Compound interest is simply interest on interest! When you save you earn interest on the initial sum you invest and any accumulated interest. As interest accrues, it gets added to the principal, creating a snowball effect.
At the beginning, the gains are small but over many years, compound interest can have an astounding effect.
Compound interest: turning savings of $36,000 into over $1million
Let’s say you work for 10 years as a teacher in Vietnam. Over the decade, you save $300 consistently each month. You invest the savings carefully, earning 8% return.
At the end of 10 years, you have saved a total of $36,000 (300 x 12 (months) x 10 (years))
Over that period, compound interest has been doing its thing. You’ve earned interest of $16,800 on your savings and now have a pot of $52,799.
You return home and park those savings for 40 years, until you retire. You don’t add anything, you just keep the money invested, accumulating compound interest and you don’t take anything out of the fund.
After 40 years, you decide to retire. That $36.000 you invested when you spent that wonderful 10 years in Vietnam? It’s now worth a staggering $1.14million. Party!!!!!
The big mistake most people make with saving
Where the majority of people go wrong with saving for retirement is starting too late.
If, in the example above, you park your savings for 20, rather than 40, years, you end up with a nest egg of a measly $205,077.
Compound interest needs time to work. And the longer the better.
Yet so many people don’t save a penny towards retirement until they reach their 40s. When generally they panic because, believe me, while retirement seems ridiculously far away when you’re in your 20s, in your 40s, it seems scarily close!
Don’t let that be you. Even though you’re young and responsibility-free now, it probably won’t always be that way. Do the smart thing and teach, travel and save while having the time of your life in Asia.
Advice on smart saving
An 8% return might sound ambitious, but with the right guidance, it is achievable. Say goodbye to low-interest bank accounts and hello to higher returns with investment options like funds.
Historically, the average annual return of the stock market, as measured by indices like the S&P 500, has been around 7-10% after adjusting for inflation. Of course, there are no guarantees but another advantage of being young is that you can afford to take more risk with your investments as you have plenty of time to recover from any losses. With higher risk comes higher return.
The good news is that Infinity Vietnam is here to help you navigate this complex, and possibly unfamiliar, world. From explaining different investment products to helping you choose those that match your risk appetite, your friendly and knowledgeable Infinity adviser will be your coach and cheerleader, guiding you to financial success.
Why not make an appointment to chat to us about making the most of your savings while you teach and travel in Vietnam?
A leading provider of expat financial services and wealth management services across Asia.
