Let compounding do some of your hard work for you

You worked hard. You saved hard. Many years later, you still don’t have what you thought you would.

Many women are natural savers. We are more conservative.

We like to stash away $20 bills in different purses and pockets to happily find them at some future date! We stuff our checking accounts, our wallets, and we would also stuff our mattresses if only we were sure the bills would still be there in 30 years!

I know women who hide and put away cash only to forget where they put it! My mother routinely finds bills in the strangest of places, as she tries to stash away a little here and there, mostly to hid it from my father!

All this is funny, yes, but also worrisome.

I have met successful business women with large checking and savings accounts, but no investments. The money just sits there and earns practically nothing. They know that $100 tomorrow buys a lot less than $100 today. Yet they are afraid of investing, afraid of losing some of that really hard-earned money.

We tend to focus so much on what we don’t know and on the risks of investing, that we quickly forget about the magic of compounding!

Remember how much we liked twirling as little girls? We started slowly and then turned faster and faster until we made ourselves dizzy? We let go of all control and we just loved that feeling!

Compounding is a little like that. You start slowly, you must trust yourself, and by the time years pass by, you take a look and get dizzy just by looking at what it did for you!

The concept is really simple!

TAKE A LOOK:

Imagine you already have $1,000 in your account. It is your starting amount.

  • If you add $1,000 every month for 20 years, you will have $240,000.
  • f you add $1,000 every month for 20 years at an average of 5% interest monthly, you will have over $400,000!

Is 5% too “risky” for you? Let’s try 3%:

  •  If you add $1,000 every month for 20 years at an average of 3% interest monthly, you will have $330,000!

Is 3% still too much? Let’s try 1%:

  • If you add $1,000 every month for 20 years at an average of 1% interest monthly, you will have $266,000!

Who would not want at least $26,000 free money??

Conclusion: even the smallest interest will make a big difference in the long run.

There is no magic, it is simply compound interest.  Here is our summary:

Interest rate 0% 1% 3% 5%
Initial amount 1,000 1,000 1,000 1,000
Monthly contribution 1,000 1,000 1,000 1,000
Number of years 20 20 20 20
Final amount $240,000 $266,000 $330,000 $413,000

Yes, there are many caveats.

Yes, in today’s low interest rate environment, it is not that easy to earn interest consistently.

Yes, it matters if you compound daily, monthly or yearly.

Yes, it matters if your portfolio takes a hit one year and the value fluctuates.

Yes, we know all this.

And we can explain it all.

But for now, just remember the simple concept that men have known all along and that women are catching up on:

Sometimes it’s ok to work really hard, but sometimes it’s also ok to SIT DOWN, RELAX, AND LET OTHERS DO THE HARD WORK FOR YOU!

Have you tried a calculator? Play around with it! Let us know what you find out!

Finbliss team

It’s your financial life. Embrace it. An educational community of financially aware women helping, supporting and guiding one another.

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