Let’s pause in our back to basics series to consider the power of baby steps. Are yours big enough?
You might not consider “baby steps” a milestone on the path to budgeting, investing, and saving. But, consider how many people give up on budgeting, investing, or saving. They claim it is too difficult, intimidating, or impossible. They give up.
Here’s the secret: small actions DO make a difference. Consider this example from “Eight Steps to Seven Figures” by Charles Carlson:
If you were to improve just .003 each day—that’s only three tenths of 1 percent, a very slight edge—and you kept that up for the next five years, here’s what would happen to you:
The first year you would improve 100 percent.
The second year you would improve 200 percent.
The third year you would improve 400 percent.
The fourth year you would be a better person by 800 percent.
By the end of year five—simply by improving three tenths of 1 percent a day—you will have magnified your value, your skills, and the results you accomplish 1,600 percent.
Yes, there is a financial parallel. Carlson provides an example which I’ll boil down to these two hypothetical situations:
Situation A
Invest $95/month
Annual return: 11.4%
Holding period: 20 years
Total amount at the end: $87,544
Situation B
Invest $100/month (just $5 more than Situation A)
Annual return: 11.5% (just 0.1% more than Situation A)
Holding period: 25 years (just 5 more than Situation A)
Total amount at the end: $173,659
The reward for those baby steps? $86,115.
Do not be discouraged by small amounts. Whatever small changes you’re making will add up. Keep making these small steps. They do add up!
July 11th, 2008 at 12:02 pm
It’s amazing what time and compound interest can actually do. Good post!