Cost of Delay – Saving for the future
By Sam Brookes, Private Client Adviser
Planning to save for the future, be it retirement, our children’s school and university fees or even that fishing boat we dream about at night (and during an overly long conference) is something we all know we must do. Most of us, however, are guilty of the exact same thing; putting it off to a later date. We all know we are due a bonus next year or that the next contract will be bigger and give us more disposable income and after all, how can we give up our weekly luxuries for something that won’t give us a benefit for a good few years?
Unfortunately, the truth is that delaying saving for that important goal costs us far more than we think. This is because time is our friend when saving and investing over the long term. As an example, and a particularly pertinent one given the recent Push Survey of Student Finance, it is now estimated that the average student debt of a university starter in 2018 will have risen to over $53,000 by the time they finish their course.
If you have a 3 year old toddler and you start saving $500 a month now, by the time they reach 18, you breathe that sigh of relief and pack them off to college, you would have amassed over $156,000. If you delayed just 5 years and waited until their 8th birthday before you started that college fund, you would be over $70,000 worse off by the time you help pack their bags.
*assumes contributions of $500 per month are level throughout and with an annualised net growth rate of 7% per year.
As you can see from the above example, the cost of delay is far greater than many would credit and the important thing is to get something, anything, started sooner rather than later.
The cost of delay when saving for a goal further off in the future is even starker. Retirement planning, for example, has changed hugely over the last 30 years. The case used to be that we would work at the same company for most of our lives and then retire in relative comfort from an employer’s final salary scheme. That is commonly now a thing of the past, especially for ex-pats living abroad where pay is generally good, but contracts are short and we are left to our own devices where saving for retirement is concerned.
If you are currently 35 years of age and wanting to retire in 25 years time at age 60 and again, only wanting to put away as little as $500 per month, waiting that extra ten years and not starting to save until you are 45 would this time cost you over $235,000 and your final pot would be worth less than half the amount than it would be if you started this month.
(*again assumes contributions of $500 per month are level throughout and with an annualised growth rate of 7% per year.)
So the moral of this article is that most of us have made the decision to uproot and move to a new country for the financial opportunities that arise here, let’s not waste it by putting off the decision to do something with our hard earned pay, it may hurt us more than we thought.