Small Savings Can Lead to Big Payoffs

March 20, 2014
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MarchBlog2ImageWhen budgeting for the month, people often keep enough money to pay the regular bills–the mortgage, car payment, phone bill, etc. However, most people often forget about the most important check that should be written first. Regardless of profession or earning capability, the first check should always be written to yourself!

It is often said, “It’s not how much you make that matters; It’s how much you save.” Paying yourself first helps to squeeze the budget within the remaining funds. Most people in our society think that it’s the big purchases they should plan for, but they often forget to plan for the most important thing, securing their own future. Financial professionals suggest that setting up a monthly automatic transfer from your checking account to your retirement account is the best way to save for the future.

Many people think that they cannot afford to save due to their present commitments. People fail to realize that small savings can go a long way over the years. Consider this idea, offered by best-selling author David Bach, called the Latte Factor™. David suggests that if you cut your small expenses on a regular basis and invest it, over the years those small savings can lead to substantial payoffs. For example, instead of paying a visit to the coffee shop for a latte and a muffin and consider toting your own morning snacks, that you can save about $5.00 a day. Over the course of a week, that’s $35. If you are earning a hypothetical return of 5% per year on your savings, it can grow those small savings into a considerable amount over time.

1 year = $1,842
2 years = $3,778
5 years = $10,201
10 years = $23,292
15 years = $40,093
30 years = $124,839
40 years = $228,903

If you consider these numbers, it becomes apparent that to become wealthy, you do not have to earn a lot or even save a lot in terms of percentage of your income. The magic of compound interest can turn your small savings into a large fund, which can give you a nice retirement coushion.

This concept may seem like Finances 101; however, many Americans struggle with the concept of paying themselves first. If you have any questions about where to direct your savings to maximize your returns, please contact HFG Wealth Management.

Blog Disclosure
Examples are hypothetical in nature and are for illustrative purposes only. HFG Wealth Management, LLC (“HFG”) is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. The views expressed by the author are the author’s alone and do not necessarily represent the views of HFG or its affiliates. The information contained in any third-party resource cited herein, including but not limited to other blogs, websites or articles, is not owned or controlled by HFG, and HFG does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by HFG of third party or any of its content or use of its content. The standard information provided in this article is for general educational purposes only and should not be construed as, or used as a substitute for, financial, investment, or other professional advice. If you have questions regarding your financial situation you should consult your financial planner, investment advisor, attorney or other professional. A copy of HFG’s current ADV Part 2A discussing HFG’s investment advisory and financial planning services and fees is available for review upon request or at www.adviserinfo.sec.gov.

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