The Power of Compounding and Why You Should Start Saving Today

Ever wished that your money could keep growing, without all the effort? Or are you worried that your day-to-day expenses will leave you with no savings at all for your long-term needs?

Lucky for you, there’s a simple way to put your money to work for you which helps you in the short term as well as in the longer run. It’s called the compounding and can help you exponentially increase your savings.

How does Compounding Work?

Compounding is the process of generating more returns on an asset’s reinvested earnings. Simply put, when you invest in a Mutual Fund you earn a certain amount of returns. With Compounding, your returns are reinvested and hence keep your wealth growing steadily. For younger investors, it is the greatest investing option available, and the main incentive for starting as early as possible.

Build Your Savings over Time

Obviously if you just invest a small amount and let that sit for years, your money might not grow as much as you’d want. The key is to keep making contributions (no matter how small) to your account regularly so that compounding makes your money grow faster. The earlier you start saving, the better off you are.

Time is Money

The magic ingredient that makes compound interest work best is time.

The simple fact is that WHEN you start saving is far more important than HOW MUCH you save.

Take a look at the example on the right. Asif who started saving at the age of 35 has invested 3 times as much as Ali, yet Ali’s retirement amount is far higher. Why? Just because Asif saved for just 25 years while Ali saved for 35 years. That’s the magic of compounding! It favors those that start early; that’s why it pays to get started as soon as possible.