Finance Coach - Vol. 30

Finance tip: Savings

Harness the power of compound interest, and start saving early. There are many examples of the power of compound interest (essentially interest on interest), but here’s one that I remember seeing recently: Imagine you have two people, Mr A and Mr B, who are the same age. Mr A saves ten thousand bucks a year for the first 12 years, and then stops saving altogether, leaving his investment to grow. Mr B does not save a cent for those first 12 years, but then saves ten thousand bucks a year for the next 28 years. At the end of 40 years (12 + 28), assuming a real return of a few percent a year, Mr A’s investment will be worth substantially more than Mr B’s! Mr A only saved for 12 years, versus Mr B saving for 28 years, but the fact that Mr A started earlier means that he had compound interest working for him – with his investment being worth more in the end. The moral of the example is thus, if you’re not saving anything at the moment, to start saving NOW (not next month, or when you get your raise next year). The sooner you can get started, the sooner you can have the power of compound interest working for you!

Business tip: Sales/Marketing

Sell benefits, not features. Whether you’re selling a product or a service, make sure that your marketing message entails the benefits of what you’re offering, and not just the features. By explaining the benefits to your potential customers, you are going straight to the heart of the matter – which is ‘what the product/service will do for them’. For example, a bad car salesman will go on about how the vehicle has ABS brakes and multiple airbags. A good salesman, however, will mention these features, but then put them into context by explaining that the car is very safe to drive. The good salesman has put forward the benefit of driving the car, whereas the bad salesman has just listed features of the vehicle (which one could find in a brochure). Or if you had a small business offering accounting services to companies, a feature would be that you can cover the full financial function. A benefit, though, is that your customers no longer need to worry about paperwork, and can concentrate on growing their businesses. Do you see the difference in the two messages, and how much more effective the latter would be?