Jamaicans often use the proverb “One one cocoa full basket.” This may mean different things to different people. Once you hear it, you understand. But, in essence, we shouldn’t ignore small amounts because everything adds up to much. This is a good adage, especially when thinking about saving towards a goal. The large goal amount may be a deterrent to realizing our dreams, but when you think about it, if you start now and each month put aside a little amount, this will add up to much in the long run. Many of us see others with a big car and a house and wonder how they can achieve such assets, but instead of looking at how they made it big, think about how you can make it big. Putting aside a little every month will help you achieve your ultimate goals.
The longer the time period, the more money will be accumulated. For goals such as retirement or a child’s college education for example, the earlier you start the more wealth you will accumulate and the smaller the monthly savings. If Jono were to start saving for his retirement when he gets his first job at 25 years old and he were to put aside $50 monthly for the next 35 years till he is ready to retire at age 60, at that point, assuming an interest rate of 3% p.a. and interest compounded monthly, he would have $37,313.57! There could also be more at the end of the period since Jono can decide based on an increase in salary or a Christmas bonus for example, to increase his monthly saving. Jono realizes that he has time on his side and small amounts add up. If, on the other hand, Jono at age 55 realizes he is fast approaching retirement and he decides at that point to start saving his $50 per month, in the next five years Jono would only have accumulated $3,298.49. A far cry from the $37,313.57!
Funding for college can also be expensive; however, if one starts saving from early, the task may not be as daunting. Many people rely on student loans or grants/scholarships for education, but this is not always accessible, and high interest rates might be a deterrent to giving your child the opportunity to attend college. In April 2012, there was a protest at the UWI Mona campus because students were barred from sitting exams if they were not able to pay their tuition fees. As with retirement, saving for your child’s education should start early — the earlier the better. Every little bit adds up. Sonia started saving for her son Toni’s education at birth. She saved $100 every month. When Toni was ready for college at age 18, his mom had saved $28,837.01. Enough for Toni to fulfill his dream of studying to become a master chef!
When saving for a goal, one must consider the target goal amount, the time horizon, the interest rate, individual risk tolerance, taxes and inflation to calculate one’s monthly savings. A licensed financial planner can set out a plan that will take into account all these factors.
Don’t worry if the amount you put in looks small — everything adds up. Look at the bigger picture. Remember, one one cocoa, full basket.