Making Cents with Liam Croke: Lucky 13 is the sweet spot for your savings

Liam Croke: Lucky 13 is the sweet spot for your savings

As on a tennis racquet, there is a sweet spot for your savings - and it's the number 13

In some sports you might hear a reference to hitting the sweet spot and that term is used when for example a tennis ball hits the perfect spot on the racket, or when a golf ball impacts the club at a point where it produces the best possible shot.

It’s difficult to hit the sweet spot all the time but when you do, you know right away that the outcome is going to be great.

When it comes to saving how do you know when you reach that sweet spot? That point when you know you have nailed it.

The answer is when the returns on your savings are doing the bulk of the saving for you.

I’m going to tell you how you get to that point, and, of course, you have to put in some hard work particularly starting out. But once you hit certain benchmarks along the way, you can sit back and relax and let the returns do the heavy lifting for you.

Like anything else when it comes to money, the answer can be found in the numbers because they don’t lie, and when it comes to saving money, the amount you end up at any point in time is based on two factors:

1. The amount you save

2. The returns those savings earn for you

One of the key numbers of reaching that sweet spot is 13, and I’m not referring to the percentage you need to earn, I’m referring to the length of time you need to be saving for.

Because it’s year 13, when you reach that crossover point where the returns you could be in receipt of, are greater than the amount you are saving each month.

Now for the maths and how we get you to that sweet spot. Let’s say you earn €40,000 per year, and you receive increases of 2% per year, and you save 10% of it annually.

In year one, the interest you earn, assuming a 6% return is very small. You are saving €333 per month but only €9.31 is being added in interest each month. After one year, only €112 has been added, or only 3% of the amount you saved that year.

The magic starts to happen when compound interest takes hold, because in only five years, the returns you could receive will amount to 34% of what you are saving each month.

By year eight, your returns will amount to 50% of what you are saving and by year 13 you will hit that magic point where your gains begin to exceed the amount you are saving each month.

So, if you start a savings plan and you don’t have a specific need for money within a particular period of time, stay invested for 13 years; that is your number and don’t forget it. And that’s not to say you shouldn’t stop then either, because after you hit this threshold, your returns begin to increase exponentially.

Ten years after you reach that sweet spot, your returns are double the amount you are saving and seven years later they are treble.

This is incredible, particularly if you are younger and you have time on your side. If you begin saving at age 30 into a savings account or into a pension plan, at age 60 you would have accumulated €334,503 in your account and that is made up of c. €120,000 of your contributions and €214,503 in interest earned.

You will still reach that crossover point in 13 years, if you save a smaller percentage of your salary, but obviously the more you save, the more you will end up with.

So, the key is to save as much as you can as early as you can, and you will reach that crossover point at a much younger age. But, if you are a little bit older, don’t let that put you off, just remember the number 13 - it’s the sweet spot when it comes to saving.

Remember the SSIA accounts introduced back in 2001 when we all saved for five years, after which time the Government gave us a 25% bonus? It was great, but the majority of people made the mistake of stopping after five years. If they only knew that by continuing to save, in no time at all they would have been earning four times more than what the government gave them.

Of course, there are many variables involved to get to that crossover point in year 13 - the percentage of your income you save, how dedicated you are to saving, and of course the rate of return.

And while you may not make 6% every year, it’s not an impossible ask to get that averaged return over that time period. When you look at the S&P 500 Index for example, its average return over the past 13 years has been +10.20%, so it’s absolutely achievable but you have to be invested in equity regular savings accounts and not fixed ones like most people invest in with their bank.

I will cover what these types of accounts are and who they are with in a separate article in the coming weeks.

Liam Croke is MD of Harmonics Financial Ltd,

based in Plassey. He can be contacted at or

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