We ask clients to put away money for retirement, effectively locking up capital for many years.
It is a sacrifice and at times we need to remind ourselves if it is worth it.
Compounding merely means that the longer you save, the more interest (or dividends or rent) you will earn. The reason is that you earn interest on your capital and previous interest.
The Government has a Moneysmart website which has a very easy Compound Interest Calculator which allows you to plug in different time periods, saving amounts and earning rates. It produces a chart that clearly illustrates the benefits of a very simple savings tool. It is worth a look, but below is an example of the output.
