If everyone doing the same thing, you need to do more and better.
Taking an excerpt from kclau.com, top money tips preview,
" James started saving RM1000 at age 18. The brothers’ income is measly RM10,000 a year at that time. James decided to save 10% of his income. But Jeremy didn’t. Jeremy thought that RM1000 saving a year is really hard for him.
10 years had passed by. James had never failed to set aside RM1000 every year for the past 10 years. He invested the money and got an average return of 10% per annum. Both the twin brothers were earning RM50,000 a year at age 28. James thought he had saved enough. He stopped saving since age 28. But he still invests what he had put aside before that. Ironically, at the moment he stopped saving, his brother Jeremy started the commitment to save RM1000 a year. Jeremy was so determined that he never stopped saving a thousand ringgit every year until he reaches age 65.
The brothers invest in the same portfolio and reap a return of average 10% per annum. Who do you think has more money at age 65? James only saved RM10,000 from age 18-27. Jeremy saved RM38,000 from age 28-65. Without doing the compounded calculation using Microsoft Excel, most people would have guessed that Jeremy would be richer.
But the fact is that at age 65, James has RM645,617 but Jeremy only has RM403,536. James is richer than Jeremy by RM242,081! Both the brothers were doing quite well. The moral of the story is about deferring your spending. The earlier you can do it, the better it is. The earlier you can save, the less you need to sacrifice at later age. "
There is some truth to that, but there are certain assumptions in the scenario descripted that you need to be aware of.
The first assumption is that you can earned average 10% per annum every year. That rate of return is only achievable when capital are demanded and pursuited in the market. ( like the age where our parents start working) . With the development of global financial market, and increasingly more people saving for their retirement, the rate of return on safe and sound financial products have been inadequate in past decade.
Hence , lowering the rate of return to 7% per annum ( the best you can get with ASW2020), James and Jeremy will end up with RM 180,709 and RM 172,561 respectively, not much a difference.
The second assumption is that there is no inflation occuring at that period, This is never the case in human economy history of using fiat money. Assuming, James and Jeremy will save money which real term equivalent to RM1000 at their age 18. At 10% rate of return and moderate inflation (3%), they will end up with RM 667,842 and RM 659,087 respectively. At a lower rate of return(7%), Jeremy will end up with RM 336,130. While James are left with RM 203, 786.
The spreadsheet calculation can be see here.
The moral of the story is that, saving early , start investing early do give you substantial advantage to the others who don't. But if won't give you much advantage if you stop while other continue during the long term prospects.
The choice is largely depends on, how would you like to distribute the enjoyment of life brought by money, over your course of life. Some people might choose to sacrifice later, when their salary is higher, and hence less suffering in controlling consumption desire. But at some point, you will realised that, working to achieve a higher rate of return in capital, is much worthwhile than working hard to save for investment.
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