Win an all-expenses-paid trip for two to Europe (Part 3)
Posted by Faith, 5 March 2009
One second is a blink of an eye, three minutes can be a long time to wait for a boiled egg and one hour can take a lifetime, when you’re in pain.
Money and time have a close relationship too, as we learned in last week’s blog. I showed you all how to grow your own money tree so you could win a fabulous trip to Europe. Did you take the action required to guarantee the winning ticket to your dreams?
For those of you who made a mindful decision, regardless of what your dreams were, congratulations for taking control of your money and your destiny. However, if you are still thinking about it, procrastinating or making excuses, it is time to stop wondering and make a positive move.
Some thinking time is OK. But, don’t “sweat the small stuff” for too long, such as whether you should save $10 or $20 per week. The impact of not saving at all is actually far greater. Dithering over whether you should do something - instead of just doing it - could cost you thousands.
As we learned in part 2, a dollar saved today can grow to a sizeable amount if given enough time. The bigger the amount saved and the longer the time period you save it, the mightier the dream that can be achieved.
For example, saving $15 per week ($780 per year) for 25 years will add up to just over an amazing $26,600 – just the right amount for an all-expenses paid trip to Europe.
The table below shows the results from saving $10 per week ($520 per year) through to $20 per week ($1040 per year). If you are a couple, you can double the final total if you each save the same amount. Imagine what you can do with this money!
(Return of 2.5% pa after taxation and inflation was used for these calculations)
So what does a dollar spent now (i.e. not saved) cost you instead, in the future?
Let’s say you just spent your tax cut in April this year and didn’t save it. I don’t mean putting it towards a purchase that is important to you. Instead, I mean just letting the money slip through your fingers in an unconscious way – another glass of wine or a beer in the evening, a few extra items added to the grocery shopping, an extra takeaway meal or maybe a CD or DVD. Sometimes we won’t even know what we spent it on. What would be the consequences of this? Surely they can’t be that bad - it is only $10 or $20 a week.
For starters, it will cost you that lovely amount of money in the table above. Wouldn’t you rather have a trip to Europe or reach another dream, than to be left wondering what you did instead with the money, with little recollection of how you spent it?
However, there are more sinister consequences.
25, 35 and 40 years can seem a long time, when you at the beginning of it. However, somehow the years tick away and we find ourselves approaching a time in our lives when we can’t or don’t want to work.
There will be NZ Superannuation (or its equivalent in other Western countries), which is currently available here at age 65.
The current superannuation benefit is:
- $297.79 (net) per week, for a person living alone ($15,485.08 per year)
- $275.80 (net) per week, for a person living in a flat, sharing expenses (14,341.60 per year)
- $231.37 (net) per week, for a person living in a relationship as a couple (i.e. $462.74 for a couple), $24062.48 per year (for a couple)
Find out more about NZ Superannuation.
Looking at the superannuation figures above you’ll see that they don’t add up to much. Living on this amount will mean you will only be able to afford the bare basics.
If you have no other income in retirement, an extra $26,600 (saved from your $15 per week tax cut) will make a huge difference. This amount could enable you to buy a few extra things to make you more comfortable – heating in winter, keeping your car on the road (insurance, registration and maintenance), replacing the fridge or the television when it “blows up” or buying treats for your birthday or at Christmas. This may sound very lean, but it will be even leaner (miserable, even) if you are dependent only on the government’s pension.
Let’s look at it from another angle. What sort of lump sum will you need at age 65 in order to be able to spend an extra $10 per week ($520 per year) in your retirement (above the superannuation you will receive), and keep doing so for another 25 years (until you are aged 90)?
(Return on the lump sum invested at age 65 is 2.5% pa after taxation and inflation.)
(For this example, I have used amounts that are in today’s dollars to make it easier to illustrate the points I am making).
You will need to have an additional $12,000 saved at age 65, to be able to spend an extra $10 per week, every week, to age 90. If you want an extra $20 per week in retirement, you will need to have an extra $23,000 saved up when you turn 65.
So, the real cost of frittering that $10 or $20 tax cut per week now is actually greater than we think. While some of you might currently be in a dither over whether to save $10 or $20, or “busy” procrastinating, the decision will be forced on you at age 65. Without anything extra saved, you will have to decide every day what you have to do without in order to make ends meet.
So, isn’t it better to decide to save your tax cut now, when you probably won’t even miss it, to ensure some comfort in your senior years?
Does this mean you won’t get to Europe after all? Take heart, you can have both (extras and a trip) plus other dreams, as long as you put enough money aside now. The longer you have to save the bigger the result.
Every extra $10 per week you can save (instead of spending), is going to make a huge difference to your future. The key is to acknowledge this and do something now. Go online to your bank, or visit in person, and start an automatic payment into a savings account the day your wages land in your usual bank account.
I believe that anyone can save money, even those currently on limited incomes. Our parents and grandparents learned to save. They survived the tough times, such as The Great Depression, because they had saved up a little extra which helped see them through.
Take a moment to stop and think of what the real cost may be to you of unconscious spending (letting money slip through your fingers), compared with the grand possibilities of growing your own money tree for the future.
How will you use the tax cut in April?
Think about this but not for too long. Act now.
If one hour can seem like a lifetime when you’re in pain, imagine several years of misery in your old age. It will be an eternity!
---ends---
Always set goals and work towards them, but never make New Year resolutions. Want to know why? Read more...
Achieving your goals means Keeping the Faith.
Want to know more about how to make better choices about money? Check out Faith’s Fact Sheet.
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See previous blogs:
Don't sweat the small stuff.
Can you grow a money tree?
What's holding you back?
Money or your life - which has more value?
The seven secret thieves
Five questions to change your life
Find that spark
Switching lives - what would you choose?
Who can I trust to help grow my money?
How to swim in a sea of money
Life can be unfair
The rule of happiness
No way to live
Anyone can be good with money
Best ways to warm up winter
Who wants to be a millionaire?
The secret of wealth
Keeping your money safe
Having it all
Win an all-expenses-paid trip for two to Europe (Part 3)
Win an all-expenses-paid trip for two to Europe (Part 2)
Win an all-expenses-paid trip for two to Europe (Part 1)
Make a change for good
A recipe for a happy Christmas
Nothing else matters
Rage, rage against the dying of the light
Make a wish come true
Buying or Selling a House – Those that care least, usually succeed
When is a good time to buy a house?
Sleepless Nights in a War Zone
Transitions - more life or more of the “same old, same old” boring stuff?