Steady saving can fund your investing, provide a cash cushion

In kindergarten, my parents gave me a coin-savings booklet with slots set in neat little rows across the inside. Twenty cut-outs just big enough to insert a nickel. When I filled the book and presented it to the bank teller, she gave me a fresh one-dollar bill which I would reluctantly hand back to her to deposit in my savings account. And so began the process all over again. Eventually I graduated to the dime-savings booklet.

The amounts were small, of course, and the interest rate paid on savings accounts was fixed at 5 percent (what we wouldn't give for any risk-free instrument yielding 5 percent today!). I was focused on saving and no matter how small the amount, I saved it. By the time I was ready to buy my first car, I was able to do so in an all-cash transaction. First, a very well-used light blue 1968 Volkswagen Bug and eventually an also used but much more stylish red 1974 convertible Volkswagen Karmann Ghia. Times are different — cars much more expensive — but the act of saving remains unchanged. It worked then and it works now.

I know. This is a column about investing. But, that is actually my point. Without capital to invest, we have little hope of meeting our long-term financial goals. Saving funds investing. Yet polls show that 90 percent of Americans admit spending more than they need to, which means we are saving less than we should. Think of spending as the anti-saving and saving as the fuel for our investment portfolio. Search for opportunities to save and the activity will become a habit.

Many individuals fall into the trap of thinking that the small amount they can afford to save isn't worth it or, worse, that they are too old to save. But saving even a little is worth it. Putting aside just $100 per month over 25 years (assuming an interest rate of 2 percent) will produce $38,884. Investing that same $100 per month also over 25 years (and assuming the historical average rate of return for stocks of 9 percent) results in a much more robust sum of approximately $113,000. Both activities — saving and investing — matter.

And if you don't have a lifetime to save but are able to tuck away, say, $500 per month at our assumed savings rate, the effort will produce $104,858 over 15 years. Investing that same amount produces a superior result of more than $190,000. Plug your own assumptions into any online bank calculator. Take note of the power of compounding on your savings and investments over time. I hope you'll find as I did when it comes to achieving our financial objectives: Nickels and dimes still matter.

Write to me with your best savings ideas! I'll share the best next week.

Nancy Tengler spent two decades as a professional investor. She is an author, financial-news commentator and university professor; her book, "The Women's Guide to Successful Investing," is out now. Reach her at nancy.tengler@cox.net.