From little acorns: many a mickle makes a muckle

Ben Kumar | Supplied

When it comes to saving money, I always tell people that even a little makes a big difference – and getting into good habits early can help even more.

It’s a curious thing about human behaviour, but once we start doing something, we find it hard to stop – so start saving now.

But how much should you save? Well, as financial technology has improved, even tiny amounts can be invested, so honestly, anything goes.

Let’s start our example with a 25 year-old saving £10 a month until they turn 65, and assuming a return of8 per cent per annum (over the last 40 years, the FTSE-100 has returned about8 per cent a year, once you include and reinvest the dividend payments).

After 40 years, our example would have invested £4,800, but it would have grown in value to more than £32,000.

But if our subject had saved £20 a month, they would have invested £9,600, but it would now be worth £65,000. Or if they had made the leap to £50 a month, our example would have invested £24,000, and seen it grow to £163,000.

But what if you can’t find the extra £20 or £50 each month? What about increasing the rate at which you save over time, just by adding a pound or two each year to your monthly contributions?

Let’s start with £1. So in your second year, you’re saving £11 per month. Third year, £12 per month. Fourth year, £13. And so on, up to your 40th year, where you’ll be saving £50.Following this course of savings action would mean you’ve saved £14,000, and it would have turned into £67,000.

Or, if you can add £5 per year (so £10 a month in year one, £15 a month in year two, £20 a month in year three, etc, etc), things get really interesting.

Over 40 years, you will have saved £50,000 – in your final year you will be saving £210 per month – but you will have got there in nice easy steps.

And, if it increases at 8 per cent per year, you’ll end up with £205,267.