I wasn't concerned for a long time about the existence of this account and I didn't even know which pension fund I had been allocated to. I still remember how, after the launch of Pillar 2 pensions in Romania, a colleague kept asking me where I had my private pension account. I think it was sometime before turning 30 that I really began to realize the need to save. He who understands it, earns it he who does not understand it, pays it."Īlthough, before moving into freelance, I worked in finance and banking, I readily admit that I was not a thrifty person in my youth. If you choose to use credit you will have to pay for the benefit of instant gratification whereas, if you choose to save, you will be rewarded for delaying gratification.Albert Einstein is believed to have said "Compound interest is the eighth wonder of the world. You also have to be disciplined and not spend the money your investment makes before you reach your savings goal.The cliché that good things come to those who wait is especially true when it comes to compounding. Both the decision to invest and the decision whether or not to use credit are essentially choices between instant and delayed gratification. To benefit from compounding, you first have to start saving and the sooner you start the better. How do you ensure compounding works for you? And since you would have spent this R20 000, you would only have the original R10 000 still invested.ĪMOUNT OF YOUR INVESTMENT RETURN RATE TOTAL AMOUNT WITH RETURN EARNED If your returns had not been added to the original amount and left to grow if you had spent them instead, the total gain from your investment would be only R20 000. The below example uses an investment of R10 000 and annual compounding to illustrate how compounding works.After 20 years, your R10 000 investment would have grown to R67 275 – a gain of R57 275. This has a greater impact than compounding monthly, which has a greater impact than compounding annually.)
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