One percent might not sound like an awful lot, but putting away even a tiny fraction of your salary can make a massive difference to your financial future if you start early.
Setting money aside and investing in the stock market can seem like a complete pipe dream to those who struggle to pay the bills every month.
Many young workers will simply laugh off the usual financial advice that says you need to be saving ten percent of your salary. How can you put money aside when you barely have enough to get by from month-to-month?
Investing shouldn’t put you under financial strain. And if you’re smart about your saving, it doesn’t have to.
Take it on yourself to start putting a little bit away every month, and soon you’ll find that your savings will grow rapidly and you’ll actually start enjoying a more disciplined lifestyle.
But how do you get started without any pain?
Start with just one percent.
The One Percent Investment
How can just one percent of your month’s salary make a difference?
If you’re on $40,000 a year, that’s only $33 a month you’re putting aside. That’s less than a new pair of jeans, or two Starbucks coffees a week.
Realistically, if you think one percent of your salary is completely insufficient to secure your financial future, I’m afraid you’re partially right.
But it’s an important start.
Let’s play out a little scenario….
Dave is twenty-five and makes $40,000 a year working as a junior marketing executive. He starts saving one percent of his salary per month and invests it into an S&P index fund with an average return of 10%.
If he were to keep up that one percent saving until he retires, he’d end up with a portfolio of just under $200,000 – with a little help from compound interest!
That’s hardly enough to see you through your golden years, but it’s a lot better than nothing.
But Dave obviously isn’t going to be on the same salary his whole life.
So let’s say after working at the company for five years, he gets a raise and is now on $48,000. With that extra bit of income, he can up his savings to two percent.
Ten years later, Dave has almost $30,000 in retirement savings. Doesn’t seem like very much, but remember that he’s only ever been saving two percent of his salary.
At forty, Dave gets an offer at a new company with a starting salary of $60,000, and decides to increase his savings again by one percent.
Now by the time Dave reaches fifty, he‘s got well over $100,000 saved just for his retirement.
At fifty, he gets another nice raise that will see him finish out his career making $72,000 per year. So for those last fifteen years, he decides to bump up his savings again by just one percent.
By the time Dave retires at sixty-five, he’ll now have over $500,000 in savings. The most he ever saved at any point was 4% of his wages, and that was towards the end of his career when he was on $72,000.
Throughout the course of Dave’s saving, he never needed to put aside any significant portion of his earnings. In fact, Dave was channeling such a small percentage of his monthly paycheck into investments that it was barely noticeable.
But that steady stream of investing built to over half a million dollars by the time he retired.
A Little Goes a Long Way
Regularly saving even a small percentage of your income is the only way you will ever build wealth, but you have to get into the habit early and stick with it. Saving ten percent of your income is a great goal, but if that seems out of your reach right now, start with whatever you can and build it up as your situation improves.
Planning for your financial future doesn’t require a ton of money all at once.
One percent is all it takes to get started.