Most of us realize it is smart to invest money. However, some people believe that unless they can invest large amounts of money it isn’t worth bothering in the first place.
So, is this true? Should you forget all about investing anything unless you happen to have lots of cash you can sink into an investment of some kind?
Lots of small equals big
Okay so that isn’t a great sentence. But it does illustrate how important it is to understand there is still power in saving small amounts of money. All those small amounts eventually add up to a somewhat larger one, and when that happens you might find you are left with a lot more cash than you had before.
You can also take advantage of forming a good money saving habit. Even if you can only save a dollar in a jar every few days, you’re forming a good habit that will stay with you for a long time to come. Not only will this lead you to save lots of smaller amounts, it also means you’ll make good decisions if you ever find yourself with a larger sum of money to invest.
The power of compound interest
You’ve probably heard of this before but it is worth looking into in more detail. When you save money you get interest paid on it. It doesn’t matter what the specific interest rate is in terms of this example – all that matters is that you get that money.
Over time you’ll get interest paid on all the money you manage to put away. However, you will also get interest paid on the interest you’ve received over time.
This means you could put away $100 and get, say, $2 interest on it in a year. If everything stays the same for year two, you will get interest paid on $102 in the second year. This will be the original $100 plus the interest from the previous year. If you put in more cash you’ll get interest paid on that as well. The following year you’ll again benefit from compound interest on whatever you had the previous year.
As you can see, it really is worth investing small amounts of money, even if you’re only using a basic savings account. It’s not just the benefit of saving the cash that you’re getting – you’re getting more cash saved up through compound interest plus the perk of a good healthy habit as well. These aspects are perhaps worth even more than putting away the money in the first place, and you’ll definitely benefit from them in the long term.
So if you thought it wasn’t worth putting anything away, you should think again. Your life might change for the better if you focus on the action rather than the amount you are saving. In the end, the total sum saved might surprise you anyway, so try it today and get a good habit going.