One of the key benefits of saving from an early age is that your investment returns earn their own returns and so on. The longer you invest, the greater the effect this compounding has.

Here's an example; Jon at age 25 saves $2,000 each year for ten years and then stops adding money to his account. Andy at age 35 saves $2,000 each year for 30 years. When they both reach 65 you might expect Andy to have the largest fund as in total he has paid in $60,000 and Jon only $20,000.

However, assuming both earn an investment return of eight percent after expenses, Jon has in fact accumulated $294,870 in addition to his $20,000 (total $314,870) where Andy has only accumulated $184,632 in addition to his $60,000 (total $244,692). A dramatic difference for less invested for Jon. All because he decided to start his savings discipline earlier thus benefiting from the effect of compounding returns.

If Jon had continued to save $2,000 each year until 65, because he was used to not having that money to spend, he would have a fund worth $559,562 (using the same assumptions).

Deciding to pay yourself first by setting up a regular savings discipline will be a key factor in your standard of living later in life. Where else will the income come from when you are no longer working? If you're contributing to a pension scheme now, do you know what income that's targeting to give at retirement, will it be enough? "But I can't afford to save any more now" people often say. Consider this, if you can't afford to spend less now how will you afford to live when your retirement income could well be less than a third of what you currently earn.

There are essentially two steps to trying to save more. The first is to retrain your mindset to want and need fewer things. It is very easy to get caught up in the desire to acquire all the latest technology, fashions, home furnishings etc. where items are constantly being replaced just to be upgraded with this year's model or be in the latest colour. We're driven largely by advertising to believe this expenditure will enhance our lives. In reality, we accumulate so much we end up needing to pay more for bigger houses to accommodate it all. Enjoy the discipline of saying: "I don't need to buy this, I would rather see my worth in savings funds increase thus building security that will truly enhance my life."

The second step is simply to save it before you have the chance to spend it. Set up a savings deduction so it comes out as soon as you are paid rather than seeing what you have left at the end of the month.

Harvard did a study for the US National Bureau of Economic Research that determined there was a huge variation of wealth at every income level. Those on the highest incomes or those with the large inheritances weren't necessarily the ones who had accumulated the most wealth, they simply spent more. There were two main findings concluded from this study. The first was the size of wealth was determined by "how much the families chose to save" and secondly that "saving consistently is better than putting aside a big sum every so often".

The sooner you pay yourself first the sooner you will see the benefits of building a secure future for you and your family.

Sue Wyatt ACII, MSFA is general manager of LOM Asset Management. she can be reached at 295-6999.