The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.
Thornton T. Munger (1883-1975)
All of us save things. A ticket stub from a first date. A programme from a memorable theatre visit. Telephone cards from your first foreign holiday (anyone remember telephone cards?). A random stuffed PG Tips stuffed monkey toy from university which became a house mascot (thank you Unilever).
Over time this little memory here and there builds up to quite a hoard of valuable mementos. Compound collecting. The same is true of saving and investing.
However, whereas significant sentimental saving seems so easy. For some, financial saving and investing is more of a laborious than a lovable enterprise.
Nonetheless, It is widely recognised that getting into a regular saving (and investing) habit is the most powerful way of growing your wealth over time. It is one of the most effective ways of creating the modest starting investment snowball which through compounding grows to a significant nest egg.
For most of us, this often revolves around a monthly saving plan.
This makes sense in some many regards. If you get paid once a month, then being able to immediately direct some of your income to your savings/investing account is pretty straightforward. But would it be better to set up a regular savings schedule not by the month but by the week?
Monthly SavingIn a word, yes. Why? From a purely numbers reason it is simple. If you save £800 a month you probably do a shorthand calculation of that being £200 a week. After all, the rule of thumb is that there is 4 weeks a month.
Now that is a good system. In total it would result in you setting aside £9,600 per year. Left to compound (twice a year) for 20 years at a low rate of 5% this would be worth about £25,776. Excellent.
However, months--as we all know--are not 4 weeks long. If so, there would only be 48 weeks in a year rather than 52.
Weekly SavingBy saving by the week you do not change the mental perception of your savings rate (still thinking of a month being 4 weeks you think you're saving £800 a month.
However, in real terms you are saving an additional 4 weeks worth of money! A month by the rule of thumb!
As a consequence, you would save over the year £10,400 per year. That is a full £800 more than by saving monthly. Again, left to compound (twice a year) at a low rate of 5% for 20 years this would be worth £27,924.
The EffectsThis means that by saving by the week rather than the month you would have gained an extra £2,200 over 20 years.
If this was continued year after year this would add up to a huge amount of additional cash down the line.
From a budgeting point of view, as well, it helps a little as well. If you budget by the week rather than the month (as most people do) your expenses and savings calculations are more closely aligned.
It just goes to show that often a little change can make quite a large difference. It is yet another way to give your savings and investment snowball a firmer push on its journey to financial independence.
You can't deny an extra £2,200 is a noticeable amount from a small change. Weekly saving thus seems the easiest and most effective way of turbocharging your investments.
You'd be glad that you did. It may be enough to stock up on a small army of (hopefully by then collectable) PG Tips monkeys. It's certainly enough to buy you many more memories.
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[Creative Commons image reproduced from Flickr user Philip Chapman-Bell]