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Educational Resources

By Theresa Fry, Senior Vice President and Manager of IRA’s, Retirement and Education Planning

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With Memorial Day weekend behind us and temperatures warming up, the unofficial kickoff to summer has begun. Thankfully, more and more states are lifting their COVID restrictions and people are once again looking forward. Summer may offer you the opportunity to lead a more active, adventurous, and healthy lifestyle, or perhaps provide the rest and relaxation you need to recharge and restore your mental well-being. It’s also a good time to do a financial health check-up as we approach the midpoint of the year.

Most people would probably admit it’s a good idea to save a little more than they do today. Did you know that one of the most powerful savings tools you have at your disposal is time? Let’s say you were offered the choice of having a penny on June 1 that doubled every day for the month, or an even $1 million dollars. Which one would you take? The majority of people instinctively choose the $1 million dollars because they get caught up in the initial amount of $1,000,000 versus $0.01. But take a look at what the power of doubling does if you are patient:

June 2021

Sunday

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

 

 

1

$0.01

2

$0.02

3

$0.04

4

$0.08

5

$0.16

6

$0.32

7

$0.64

8

$1.28

9

$2.56

10

$5.12

11

$10.24

12

$20.48

13

$40.96

14

$81.92

15

$163.84

16

$327.68

17

$655.36

18

$1,310.72

19

$2,621.44

20

$5,242.88

21

$10,485.76

22

$20,971.52

23

$41,943.04

24

$83,886.08

25

$167,722.16

26

$335,544.32

27

$671,088.64

28

$1,342,177.28

29

$2,684,354.56

30

$5,368,709.12

 

 

 

 

Now a 100% return every day is highly unlikely, but the principle of compounding holds true for even smaller returns (though it will take longer than a month to grow your wealth). The bad part about compounding is that it doesn’t get very exciting for a while. By the third Saturday in the example above, you only have $2,621.44 if you had taken the penny. At that point you might be telling yourself the $1 million would have been the better way to go. But by the end of the month, with $5,639,709.12, your patience would have paid off.

One takeaway from this example should be that it takes time to grow wealth. That is why it’s so important to start saving and investing early to give your money time to grow. Another thing this example teaches us is that rather than relying on instinct or gut reactions, when it comes to your finances, it’s better to run calculations. Whether you are saving for a vacation, college education, a home, or a comfortable retirement, sit down with a financial advisor, talk about your goals, and run some numbers.

Through July, we’ll be providing some savings strategies you can use this summer to promote good saving and investing habits. We will cover a variety of topics that include tips for new college graduates and students with part-time or summer jobs, how much you need to save just to eat during retirement, and how to protect your savings against two big enemies – taxes and inflation.

We hope you enjoy our summer savings series. We are here to help you with your saving and investing needs. Contact a financial advisor today if you would like more information.