Some tasks take longer than others. It might only take you a few hours to build a barbecue, while setting up a garden can take the better part of a day, if not a few days. In neither case can you bank on doing the job at a moment's notice – you have to give yourself some time.
The same goes for building a nest egg. What is superannuation if not a long-term task that can take the better part of a few decades? And much like these more common household tasks, the earlier you get started, the better the finished product will be.
Here are a few of the top reasons why this happens to be the case.
1. The power of compound interest
If you start saving early enough, you can harness the power of compound interest for your own purposes, making huge savings by the time you're ready to retire.
Essentially, compound interest is when you earn interest on your interest. With a compound interest account, if your savings earn interest and increase, then next time it's due to accrue on your account it will be calculated on top of the larger, interest-boosted sum. This will happen each time, letting your savings snowball.
If you start doing this in your early 20s, rather than your 30s, you could end up with potentially tens of thousands more worth of retirement savings.
2. You might need more than you think
In September 2014, The Association of Superannuation Funds of Australia says you need around $23,363 a year for a modest lifestyle if you're single, and $42,433 a year for a comfortable lifestyle. Yet a number of factors can make what you've saved up in your superannuation funds inadequate for retirement:
- If you live longer than you expect
- If living costs rise
- If inflation takes its toll on prices
- If unexpected health factors put a dent in your finances
Wouldn't you want to be sure that you can take whatever life throws at you? Thinking about building a nest-egg early can help get you extra prepared, just in case.
3. More time to use all the tricks of the trade
Superannuation in Australia has a variety of different tricks, techniques and benefits that one can take advantage of to boost an individual's super. These include:
- Spouse contributions
- Added personal contributions
- Government co-contributions
The earlier you start, the more time you have to make use of these benefits, a number of which are tax-free. It can also give you the freedom to come up with a cohesive retirement strategy based on these tools, potentially letting you experiment with what does and does not work.