The example reflects what the impact compounding interest has on the funds over time. It is also important to notice that starting at an early age is one of the most important factors in this process. Starting early with even small amounts is better than waiting until later and depositing larger amounts.

A Special Gift from Grandparents

     This is an example of saving a lump sum toward some future need. Perhaps its meant for college, or maybe as money toward the down payment on a house. Again, earlier is better.

Why It Pays to Plan for the Future

     Imagine that the example represents how a young woman named Jackie plans to save for the future. At the beginning of the month that she turns 22, Jackie begins making monthly deposits of $50 to a savings account. The account pays 4.0% annual interest that is compounded monthly. She makes deposits faithfully until the beginning of the month in which she turns 25. Jackie transfers the balance of the account to a mutual fund that earns an average of 8.0% each year and compounds annually. Jackie never makes another personal deposit to the mutual fund account—the growth comes only from compounded earnings. The mutual fund grows to a balance of $61,142 by Jackie's 70^th birthday.

     This process of saving continues in exactly the same way for each age as shown. Allowing compounded earnings to work, Jackie could have $767,699 in her accounts by her 70^th birthday. If she waits until age 25 to begin, the amount at age 70 drops to $706,557. If Jackie waits until she turns 30, the result at age 70 drops dramatically to $598,173. Again, start early even with small amounts.

Hints for systematic saving:

• Benjamin Franklin said, "A penny saved is a penny earned." Even small amounts add up over time. I wonder—would he leave his pennies in a dish at the cash register?

• Another old saying is "Out of sight, out of mind." Get the money you intend to save out of easy reach. Don't keep it in your checking account where it inflates the balance and is easily spent.

• Determine what amount should be put into savings from each paycheck.

• Have money transferred to savings directly by your employer from each paycheck.

• If your employer does not offer direct deposits, do not deposit the paycheck without putting some portion of it into savings. Ask your bank teller for instructions.

• If you use an envelope system to track expenses, put the unused amount into savings (even if it's just dollar bills and change).

• If you have children, teach them to systematically save and give a portion of their allowance.

• Save gifts of money toward some dream vacation or future "fun" purchase.

     I hope you can incorporate some of these ideas into your own budget and financial plan. Do you have comments? You can contact me at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .