The Power of 1% Change

If you’ve been around the self development world for a while you likely will have heard people praising the benefits of incremental change and getting 1% better.

That’s because those 1% improvements are theoretically quite achievable AND also add up to some meaningful results.

Let’s apply that thinking to our investing strategy by comparing two characters:

“Consistent Karen”

and

“Improvement Imogen”

SCENARIO ONE

Consistent Karen is 30 years old.

She makes £60,000 a year and invests £100 a month.

That’s 2% of her salary.

Her salary grows each year by 3% to account for cost of living increases.

Each year she continues to invest 2% of her income until retiring at age 65.

Assuming a 7% annual return on her investments she ends up with just under £270,000.

SCENARIO TWO

Improvement Imogen is 30 years old.

She wants to be investing 15% of her salary each year like the personal finance books tell you to but it isn’t possible right now.

Imogen knows the value of small steps so instead of doing nothing she starts investing 2% of her income.

She commits to increasing that percentage by 1% each year until she reaches her target.

It takes her 14 years and once she is investing 15% of her salary each year she keeps that up until she retires age 65.

She has the same salary increase and the same 7% annual return on her investments as Consistent Karen but Improvement Imogen ends up with £1.4 million.

THE RESULT

By starting small and building things up and searching for the 1% improvement each year “Improvement Imogen” ends up with £1,130,000 more at retirement.

Wealth is a long game and starting early, starting small and building things up bit by bit is an excellent strategy.

Thanks to Ben Carlson and Robin Powell

who shared this example in the book ‘Invest Your Way to Financial Freedom’

I’ve embellished the words a little but it’s all based on their number crunching

I know starting small can feel like it’s not enough but it really does add up over time.

What’s the smallest first step you could take?

Can you start saving or investing your 1%?

If you’ve already started could you go for a 1% increase?