The Big Trade-off: Now vs Later

What we hear: “I’d really like to be saving and investing some more, but I don’t want to compromise my current lifestyle.” Sound familiar?

Everything about your life now is so tangible. And it’s not so hard to be motivated save for that exotic holiday or a even a house deposit – they aren’t that far away and you have a clear picture of what it will look like and how you will feel as you board the plane or walk through the front door for the 1st time. But things like retirement feel so far away – the picture is hazy and there is no real sense of what it will feel like.

What if we told you that by saving an additional 5% of your income now you could retire 10 years earlier? Now that’s compelling.

 Welcome to the magic of investing. By saving and investing now you actually increase your ability to consume in the future. This is because of 2 things:

1.     Well-invested money earns a return higher than inflation – so your ability to consume and spend in the future grows – you’re not just deferring the same thing from now to later. Today’s Honda is tomorrow’s Porsche Cayenne or today’s staycation is tomorrow’s Parisian getaway – whatever floats your boat.

2.     The compounding effect multiplies gains. At this is best illustrated with a picture.

Say you invested $1,000 this year and it earns a 7.5% return, you have $1,075 at the end of the year. Next year you again earn a 7.5% return but it’s on $1,155 so your investment grows more each year. In year 1 you made $75, and in year 2 $80. And it’s a launch off from there. Why do we assume 7.5%? It’s what the stock market has delivered consistently over the long run.

The bottom line: Don’t defer starting investing. The sooner you start the more profound impact it can have on your life.