Micro-savings: making a mountain out of a molehill
August 7, 2019
Ok – let’s start off with what even is “micro-saving”? I mean if you’re going to go to the effort of saving money, why not just go hard or go home? Well as its name suggests micro-saving or micro-investing is depositing a small amount of money into an account – whether it be a bank account, superannuation account, or other investment account and ideally doing it regularly. Yep that’s it peeps, it’s really not rocket science. But, in reality, it’s a fairly different approach to the typical saving and investment mindsets that meant many feel we need to be sticking in huge amounts of money to be build our castle on the hill at the end.
So let’s take a look at exactly how micro-savings work, and why these teeny tiny bits could possibly worth your while.
It’s all about compound interest
Think of compound interest as literally the best thing since sliced bread. And in a nut shell that’s why micro-savings tools are the butter on top. The turbo charger on your car engine. The push up bra for your, oh – never mind. In fact, stay tuned for our post in upcoming weeks where we’re going to devote an entire post on compounding because we love it THAT MUCH!
But let’s start with a super quick overview – compound interest 101. In laypersons terms, compound interest is the phenomenon of what happens when you invest some money, it makes a bit (aka interest), and then instead of taking out the bit of interest that you made, you add it to the original investment amount – which means you’ve got even more money to make money from the next time around. If you do that again and again (and probably again) over a set amount of time and “nek minnit” you’ve seriously boosted the initial amount that you invested. Here’s an example from Host Plus:
“Let’s say $2000 earns 10% interest in the first year. That’s $200 interest earned.
In the second year, your original investment of $2000 has grown to $2200 thanks to the $200 interest. Your new balance of $2200 earns 10%. This time you get $220 worth of interest after a year.
In the third year your primary sum is $2420. And on we continue until we realise that we’ve (hopefully) made a hefty chunk of cash thanks to compound interest!”
So what’s that got to do with micro-savings?
Well now that we all can see that compound interest is pretty awesome – even Einstein says so, think about what would happen if you could tip in just that little bit extra to what was already going in? If you hop onto something like MoneySmart’s Compound Interest tool you can play around with how your “regular” compound interest vs “turbo charged” compound interest (thanks to even small additional micro-savings) works – and the difference it makes! It’s literally the snowball effect in action.
Now that’s great but want a pain in the rear when you have to transfer these tiny amounts each time by yourself. Will you (hint – nup). That’s the joy of micro savings tools that automate the entire process for you, and more importantly how something like Longevity App makes sense from cents. If your employer (for those lucky enough to have one) is the engine that pays 9.5% on top of your salary into your super, we’re the turbo charger for your nest egg. There are other options out there too for those who want to put their loose change towards other types of savings.
Whatever you decide to do with your money, and the choice is up to you, it’s always good to know that whether your budget is large or small there’s always something out there to help you be more engaged and hands on with your financial future!