It may sound a little weird talking about savings these days, given that there’s a lot of people trying to get from one paycheck to the next without getting behind on their bills, but savings are even more important now than ever. Understanding how a savings vehicle works may encourage some folks to start saving again. The easiest way to find money to save is to channel money that you have in a different direction. For example, let’s suppose that you have a weekly pizza night for the entertainment of the family. You might go out to a pizza parlor and order up two or three pies, buy a couple two liter bottles of soda, and there may be more money spent on games. You spent gas money to get the family to and from the outing. This sounds reasonable, and necessary for a night of fun. But, suppose you could take the same money that you spent on the night of entertainment and channel it to a savings account. This money would then be working for you over time. To replace the night of entertainment, look for other options that cost little or nothing and that still provide time with the family. Pick something that is of interest to everyone. You might play games at home and for food, the family could bake something, or learn to make your own pizza. There are many ways to have fun at home, or to take a walk to a local park. Not every night of entertainment has to cost money. So, now that we have some money to contribute to a savings account, let’s look at how such an account can be of benefit to us.

Back in the 1940’s, after the atomic bomb was used and its massive capabilities were realized, people were so awed by its power that they thought that nothing could be stronger. Someone interviewed Albert Einstein and asked him what he thought was the most powerful force on the planet. After a minute of thoughtful deliberation his reply was: compound interest. When you think about it, there really isn’t anything as powerful as interest compounding upon interest compounding upon interest. Another way to look at this concept is to imagine a chess board. In the first corner square you put a single grain of wheat. Then you double that amount in the second square (two grains) and again in the third square (four grains) and so on until you have filled every square with a doubled amount of wheat. The last square will have many bushels of wheat! This is an example of compounding at a rate of one hundred percent per square. This is truly the most awesome force anyone could ever imagine.

In the area of finances, wouldn’t it be fantastic to have dollars to replace the grains of wheat in the example above? We all would be rich in no time. Of course, we would need a hundred percent interest rate to do that. The banks, and other institutions that pay interest on our money would never pay more than a tiny (less than one percent) percentage on our money. We would not become rich with the interest rates that are paid these days, but something is better than nothing, nonetheless. If we put one hundred dollars into an account that paid interest at five percent per year, at the end of the year we would have one hundred five dollars. At the end of the next year, if everything stayed the same, we would earn five percent on one hundred five dollars, or five dollars and twenty-five cents additional, so our total amount would now be one hundred ten dollars and twenty-five cents.It doesn’t sound like much when you use these small numbers, but every year that percentage keeps adding to the total. After many years, the total amount in our account could amount to quite a lot of money.

Save whatever amount of money that you can find. Look for several ways to cut back on daily items and channel the funds into the best savings account that you can find. Bring in the entire family to work on finding ways to save. Make a goal to save a certain amount of money by a certain date and have a prize for the person with the best saving ideas. Make saving money a fun activity for the family and in a short time, you will notice that your savings account will start to grow at an accelerated rate because of the concept of compounding.