If you’re investing towards a financial goal, it’s easy to underestimate the impact that a small increase in your contributions can make over the long term. When our goals feel as big as retirement or saving for your kids’ future, an extra £20 a month can feel ineffective, but small sacrifices now can make a big difference when it’s time to cash-in that investment.
For example, if you’re investing £200 a month towards a goal like paying off your mortgage or retirement in 20 years’ time, you can see from the table below that upping that contribution to £250 can put an extra £19,326 in your pocket, even though you only contributed an extra £12,000!
The calculations above were created using our investment calculator and assume that your money is invested into OpenMoney’s portfolio 2, which is our medium risk portfolio. Have a play around with calculator to see how small sacrifices can make a difference to your investment goals over the long-term.
When you know the difference a small sacrifice can make, it’s a lot more motivating to these changes now and put away that cash towards your long-term goals. A small sacrifice to free up some extra cash to invest can look like:
• Spending a little less each month with your disposable income
• Squirreling away any additional incomings such as bonuses or gifted-money
• Switching or cancelling subscriptions you don’t use
It’s tempting to put-off increasing your contributions to a future time where you’ll think you’ll have more money – for example, after you’ve paid off a personal loan or when you achieve a promotion or pay rise at work. But it’s important to know that your investment growth compounds over time (your potential investment returns get re-invested into the market), so it can work out better to invest smaller amounts early on, than to invest larger amounts later down the line – it gives your investments more time in the market therefore more time to grow!
Take this example below, imagine your goal is to retire when you’re 70. You can contribute a similar amount, around £96,000, but starting earlier (at age 30) with smaller monthly amounts means you’ll have an additional £116,425 when it comes to retirement – and that’s not even taking into account any tax relief you might make on your pension!
We know it’s not always possible to make these small sacrifices or start investing sooner, but if it’s a possibility for you we’d recommend considering it! If you’re unsure what you can afford, speak to a financial adviser about your affordability before deciding to invest more towards your financial goals.
Our online Financial Advice service checks your affordability, to make sure you can afford the investments you are wanting to make. If you’re an OpenMoney customer, our Annual Review service makes sure your affordability is updated every year, or when your circumstances change. So if you did get a pay rise or bonus, we can check if increasing your investments is a good idea.