// THE POWER OF YOUTH — AND COMPOUNDING
You probably know that a great place to put your savings is in a high-interest savings account. Did you realize that the compounding power of interest boosts your saving power significantly?
Think of it this way: you put money into a savings account. You earn interest. But then a beautiful thing happens. The next month, the interest also earns interest. And so on, and so on.
In effect, compound interest makes your money work harder because the earnings also start earning.
Take a look at just how powerful time and compound interest can be by comparing three investors. Each one deposits the same amount of money — $1,000 — into an investment account earning 5% a year, compounded annually*:
| Taylor, age 20 | Julian, age 30 | Kali, age 40 | |
|---|---|---|---|
| Amount at start | $1,000 | $1,000 | $1,000 |
| Number of years invested | 30 | 20 | 10 |
| Amount | $4,321.94** | $2,653.30 | $1,628.89 |
Kali doesn't even double her money, but Taylor more than quadruples hers!
* Calculations do not take into account the effect of income taxes or inflation. Returns are for illustration only; actual returns may vary.
** Calculations based on Bank of Canada investment calculator
// How to become a saver
Clearly, the best time to start saving is now.
- Set a goal. Whether it's super-short term, like a ticket to an upcoming concert, or longer-term, like vacation at the end of the school year or a car when you graduate, having a goal to save towards will help you stay focused.
- Pay yourself first. Put money aside from each paycheque or at the start of each term. You'll get used to living off the rest, while you build your savings account.
- Think in trade-offs. Whenever you think you can't meet your savings target, ask yourself which is more important: the immediate expense or the savings goal? A daily $5 Chai Tea Latte, or a graduation trip to Costa Rica? Ordering in twice a week, or saving up for a used car?