Points to Remember

Ameena's Plain Math

Ameena Benjamin

Age: 30
Occupation: Primary School Teacher

“At the time I’m writing this, my doubles lady has hiked the price of ‘the breakfast of champions’ up to $3.00. When I used to buy my two doubles (slight pepper) for breakfast each morning before going to work, they were at $2.50. For all those other doubles fanatics out there who need their shot of channa to start the day off right: hold on to your wax paper while you read this because your daily dose of doubles could be costing you over $2000.

Purchasing two doubles at a cost of $3 each from Monday to Friday for one year straight (give or take a few weeks) costs you roughly $1380 dollars. Sounds crazy when I put it like that doesn’t it?

If you were to forego such an industrial strength breakfast diet plan and put that $1380 into an account that earns you 7% a year (as does one of my current savings plans), your doubles money would grow like this:

  • At the end of the first year, from $1380 to $1475.60
  • After the end of five years, to $1935.52
  • After ten years, to $2714.67

It’s not disingenuous to say that a doubles habit can cost you over $2000 in the long term and you don’t have to be a doubles fanatic to see where I’m going with this.

Things that aren’t too expensive as once-in-a-while buys are actually silent budget killers when you add up how much they cost you over a year; and they’re savings decimators when you calculate how much you could have made if you’d kept the money you spent on them, in your wallet.

Time – and the compounding of interest – turns the smallest of investments into substantial sums of money. So think twice before you buy your usual lunch take-out!”

FIRSTLINE POINTS TO REMEMBER

WORK, MONEY! WORK!

By now, the phrase ‘make your money work for you as hard as you worked to get it’ must be oft-cited enough to be clichéd. But it’s used so much because it’s true. Let’s break the phrase down:

  • You worked hard to get the money in the first place. Your sweat is never in question.
  • Once you get the money, you can:
    • A) Place it in your chequing account to retain there stagnant, doing absolutely nothing for you...until you withdraw it from the nearest ATM and spend it;
    • B) Put it in a bank savings account where it acts like it’s doing work for you but when you consider inflation, it’s not doing that much (if anything at all); or
    • C) Invest it in (for e.g.) a mutual fund product that delivers daily compounding and automatically reinvests your dividends. Because investment fund managers are hard taskmasters, you know your money is sweating just as much as you did and the proof is in the year-end statement. And so we come full circle.
THE PROCESS BEHIND COMPOUNDING
  • Original investment + return = New investment value
  • New investment value + return = New investment value 2
  • New investment value 2 + return = New investment value 3
  • New investment value 3 + return = New investment value 4 etc...

Compounding occurs when you continually reinvest the returns your investment earns and those returns combined with your original investment earn even more returns and so on. It is an incredibly powerful force but it is tempered by the fact that time is its ally. Its effects are not as impressive when you have less time to work with or when the ‘return’ value it utilises is modest at best.