Investment and Insurance Products Department
Everyone has an aim in life. The most important one, from the point of view of every person, is definitely not related to finances (or at least should not be), but if we focus on this one category, there is no doubt the most important goal is... retirement.
You need to take care of your pension yourself
That is why you need to face the truth, the quicker the better. If you want to lead a dignified life once you retire, or even retire earlier than it is expected by the legislator, you need to take care of it yourself. And this is naturally connected with saving and investing. I will not discuss here the ways of saving or investing, it is a subject for a separate article. However, it is important to realize how time influences our savings and why it is worth considering even at the age of 20.
The power of compound interest .
What is compound interest? To put it simply, it is an assumption that interests accumulated within a particular period of investing are added to the next term and therefore increase the savings’ base. Thus, savings grow ever faster (exponentially). This will be best illustrated on an example.
The compound interest allowed me to save three times more.
The quicker, the better.
Therefore, it is useful to start saving as soon as possible. At the age of 30, in order to collect the mentioned PLN 196 000 under similar assumptions (the annual profit of 3 %), I would need to save about PLN 296 every year, and not PLN 200. When I turn 40, this amount will already grow to PLN 452 monthly. If you start thinking about retirement at the age of 50, in order to reach PLN 196,000, you would need to start with PLN 856 per month. The graph below perfectly presents this problem.
The easiest and the most difficult
The problem is that when we are young, we are concerned with other issues than retirement. We prefer to spend money on entertainment, a new smartphone, or a new car, and not on a distant aim, which at the age of 20 seems to be cosmic. The above example shows, however, that even PLN 100 saved at such an early age can translate into many thousands of profit in 40 years.
Another question is whether the PLN 196,000 is a sufficient amount for the retirement period. However, no matter what the answer is, it is better to have this sum than not.