Little disciplines, like saving a little bit each week and putting it towards your mortgage or super fund, can make a significant impact on your wealth and financial independence over the long-term. For me, little disciplines are those small daily or weekly behaviours that help you achieve a long-term goal. It’s putting a little bit of money aside, maybe each month, to save for retirement or a large goal.
Asking a 25 or 30-year-old to plan for retirement is not going to happen. It’s like asking your kids to clean up their bedroom, it’s not on their radar. But automating it – getting your work payroll to put $5 or $10 extra into your superannuation or into your home loan can help enormously down the track, even though it doesn’t feel like much in the moment. You’re not going to see an immediate benefit for the first couple of months or years, but you’re going to benefit from it in five or ten-years’ time.
This is largely due to compounding interest. Compounding occurs when the money you invest continuously grows because its reinvested each day. Let’s say you had $100 and you invested it and got a 10% return. It means that that hundred dollars will grow to $110 next year. If you get another 10% the year after that, that hundred dollars will turn into $121 over two years.
But what does that mean to you? If you’ve got the ability to save money on a monthly basis, say $100 a month, then that $100 is always growing. When you get older this means you might be able to retire sooner because you’ve had the discipline of putting $100 a month away over a long period of time.
The benefits are clear. You could own your home sooner and gain financial independence, which is the ability to do what you choose rather than having to work for longer. Those who don’t observe these little disciplines at 20, 25 or 30 will have to work longer at the back-end of their career.
If you have a loan then you could pay this money into the capital of the loan which means you save interest. You’re still putting in $100 a week, but that hundred dollars is going towards paying off your home loan, which means there’s a little less interest charged on your home loan each month. Because you’re paying less interest to the bank you’re paying the home loan off more quickly.
Regardless of whether you’re saving or paying off a loan quicker, either way these little disciplines will help you be financially better off in the long-term.
Clint McNally is an Executive Advisor at Viridian Advisory
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