Archive for November, 2007|Monthly archive page
Most people generally understand the concept of compound interest, knowing that over time, interest earned will begin to snowball and accumulate more rapidly. Even though it is a relatively simple concept, visualizing how it works can be more difficult.
I think Albert Einstein said it best:
Compound interest is the greatest mathematical discovery of all time.
So, what is the Rule of 72 and what does it have to do with compound interest? The rule simply states that if you divide 72 by the interest rate, it will tell you how long it takes for your money to double. For example, assume you earn a 6% rate of return on your money. To find out how long it takes for your initial amount of money to double, just do the simple calculation: 72 / 6 percent = 12 years.
It doesn’t matter if you have a starting balance of $500 or $50,000, if you earned a real rate of return of 6% each year, you will double your money after 12 years.
Table of Returns
This table should highlight the importance of squeezing the most out of your money. If you notice, your checking or savings account at the bank earning 1%, by keeping your money there and you’ll need 72 years to double it. But, if you can manage to even get 3% on that money, you can shave 48 years from that goal. Even a modest 7% return will allow you to double your money in just over 10 years.
Even more impressive is when you consider the higher rates of return. For instance, if your investments are in the market during 5 good years and you can realize around a 14% return, you will double your money in that same period.
The Big Picture
For most people, the number of years to double your money seems like a long time. Even at a modest 7% return, that’s just over 10 years. Well, it may seem like a long time, but this is where you have to really take into account the power of compounding over the long term.
Let’s use an example of a 25 year old who has $10,000 saved up in a retirement account. For simplicity, let’s say that the account is earning 7.2% per year, so according to the Rule of 72, the money will double every 10 years.
As you can see, it starts out kind of slow. By age 35, it might not feel like much to have $20,000 saved up. But as the decades pass, the numbers accelerate in value as they double, to a point where by retirement, a measly $10,000 has turned into over $150,000. Money begets more money over time.
Also keep in mind, this is simply using a single lump-sum with no additional money being saved. When you consider that most people would be continuously adding money to this investment, the rate of compounding goes up significantly.
Keep in mind that the Rule of 72 is just a guideline. Clearly, in the real world you’ll almost never have a constant interest rate unless your investment is in a long-term fixed income vehicle. In addition, you will want to consider the impact of taxes and inflation on your results. This rule is simply a tool to help illustrate the impact that time and rate of return has on your money.
Remember, time can be either your greatest asset, or your worst enemy. The sooner you start, even if by just a small amount, it will provide more time for your money to compound. On the other hand, every passing week, month, or year is time that you can never get back. It is up to you to decide if you want time to be on your side or working against you.
The holidays are approaching very quickly and with that comes a lot of stress caused by money issues for so many people. Just recently, I took a look at my own finances to see if there were any areas where I could save a little cash each month. It was such a good exercise that I decided to expand my view and look at ideas that would fit a wider range of people. Some of the following ideas will save a substantial amount of money while others only save a few dollars here and there. Keep in mind as you read through that these small savings add up very quickly and before long you’re saving a decent amount of money!
This is not an exhaustive list so if you have ways that you save money each month, please share them with your fellow readers in the comments section. This is one area where we can definitely help each other!
- Tax Benefit of Ordering Online. If you’re gearing up for a substantial purchase, such as a new laptop, take a look at ordering the item online instead of walking into a local store. If you were to purchase the new Macbook Pro laptop from Apple (without an educational discount) you would spend $1,999 plus an additional $119 on sales tax at 6%. Ordering through Amazon would get you the same laptop $4 cheaper and you would save the $119 tax. Don’t worry about shipping either–Amazon picks up the tab.
Savings: Around $60 per $1,000 spent
- Search For Promo Codes and Coupons. A quick Google Search for Promo Codes will give you a treasure chest of results! Make your search even more effective by putting the name of the website in as well.
- Sign Up For Coupons Via Email. So many of the local stores you frequent will have a place on their website for you to sign up to receive coupons via email. Papa Johns and Borders are just two examples. Borders will send you a 20% off coupon quite often which is very useful this holiday season.
- Buy In Bulk Where Possible. If you have children, this suggestion can be a huge saver. Items such as snacks, paper towels, sodas, trash bags and detergent can all be found in larger sizes at big box retailers. Consider joining Costco but take into account the cost of the membership. If the membership cost is prohibitive, look for bulk items in your grocery store or Wal Mart.
- Consider Open Source Software. It is very easy to log on to your website of choice and order Microsoft Officeor Quicken but it is just as easy to download a free alternative. OpenOffice is a fantastic alternative to Microsoft Office and will save you hundreds of dollars in the long-term.
- Buy Store Brands For Common Items You’re throwing money away if you’re buying name-brand aluminum foil, Ibuprofen or paper towels! Switch to a store brand and save!
Savings: About $5.00 per grocery store visit or $20 a month
- Cut Back On The Movie Theater Experience. Going to the movie theater to catch the latest releases just isn’t worth it. Consider renting a DVD instead. When considering concessions and ticket prices, renting a DVD from Blockbuster and making your own popcorn will save a couple around $20 for the evening.
Savings: $20 per movie
- Rent DVD’s From Netflix. Take the above idea one step further and rent your DVD’s from Netflix instead ofvisiting your local movie shop. Netflix doesn’t have the high overhead that those retail stores carry and the savings is passed on to you.
Savings: Roughly $3 per movie
- Invite Friends Over Instead of Going To The Bar. Going to the bar can be a very expensive evening! Oftentimes, the cost of a few mix drinks out on the town would buy you a bottle of liquor to have at home. Instead of venturing out, consider inviting friends over for a cheap poker night. The savings on your drinks will surely provide you with the $10 buy-in!
Savings: Varies on your lushness
- Drink Some Beers Instead of Cocktails. I know James Bond wouldn’t be the same if he didn’t order that trademarkMartini but does it matter as much to you? Beer is usually had for $2 at a bar while a mix drink costs around $4. If you buy beer, you can drink double-fisted all night for the same cost!
Savings: $2 per drink
- Visit Your Local Library Reference books are great to own but how many novels do you read for a second time?Do you really need to own that book? Instead of buying your books, take a look at your local library. Most libraries get the new releases the same time as your local book store.
Home – Utilities and Other Bills
- Cut The Home Phone Line. Old-fashioned land line telephones are being tossed aside by so many households these days for good reason. Avoid the taxes and fees by going through Vonage. You get the same quality service and also save on long distance!
Savings: Varies by location but around $15 per month
- Are You Watching Your Premium Channels? I carried HBO at my home for the longest time because I wanted to watch The Sopranos. That $13 per month is now back in my pocket since the show is off the air. If you aren’t watching your premium channels, call the cable company and cancel. You can always add them again when the show you like comes back on the air.
Savings: Around $10 per month
- Look At DSL and Cable Internet Pricing. Cable Internet costs around $55 per month in my town. DSL’s normal rate (after the introductory $19/month offer) is $30 per month. I personally think the extra speed is worth the $25 premium but consider the switch if you’re just checking your email and browsing the web.
Savings: Varies by provider
- Are You Using Your Cell Phone Plan? So many of us purchased our cell phone plan based on what wethought we would need. Now that you have a history of bills to look over, try and determine whether you really need the plan you’re on. Most of the time, cell phone plans go up in $10 increments so see if it might be time to drop down to the plan below.
- Consolidate Your Cell Phone Accounts. If you are married and both spouses have their own cell phone accounts, stop throwing money away! You can definitely save by combining your two accounts into one “family share” plan.
Savings: Varies by company
- Group Errands Together And Save On Gas. Do you go to the grocery store on one day, Home Depot the next, WalMart one other day and so on? Group all three of those trips into one. Cutting out that back-and-forth mileage should save you a little bit of cash every month at the pump and will even help the environment!
Savings: Varies on mileage
- Stop Wasting Electricity! When you’re sound asleep in your bed, why is your computer on? Some people need to leave their PC’s on at night if they’re running a server or downloading large quantities of data. However, if you’re like most people, your computer should be turned off when you go to sleep. If nothing else, set your computer’s power options so that it goes to sleep when you do.
Home – Banking and Fees
- Use Your Savings To Pay Off Credit Card Debt. If you have a credit card that isn’t on a 0% interest introductory period and you’re carrying a balance, you’re throwing away a great deal of money! This one seems so obvious but people still build savings accounts while carrying debt! If you have $1,000 in debt on a 21% card, you’re throwing away $17.50 in interest fees every month.
Savings: $17.50 per $1,000 debt on a 21% card
- Bank Errors Will Cost You. Take 30 seconds each time a bank statement or credit card bill arrive in the mail.Almost every year, I catch a fee or purchase on one of these statements that shouldn’t have appeared. This past month, I found a $60 charge on my bank statement for an order that was canceled. A quick call to the merchant and my $60 was back in my account.
- Use Online Billpay. Online Billpay is a great way to save on stamps, envelopes and energy. Paying your bills is quick and easy and you’ll save $0.39 for each one you don’t have to mail.
Savings: $3.90 per 10 bills
- Don’t Pay Your Credit Card Company Interest And Fees. With so much competition in the credit card industry, there is no reason for you to hold a credit card with annual fees. Unless you’re getting a great deal on benefits, the $60 annual fee or so should go right back in your pocket. Cancel those cards and sign up for a card that doesn’t burn you every year.
Savings: About $60 per year
- Now Check Your Bank Fees. Just like the credit card company, your bank is probably charging you a monthly feeto keep your money there. Shop around and find alternate options such as student checking to cut those fees out.
Savings: Around $5-$15 monthly
- Use Your Bank’s ATM. Convenience will hurt you. It is so easy to run to the closest ATM machine and take out$20 but you’re going to get hit with a $2.00 fee! That’s 10% of your withdrawal! Instead, use your bank’s ATM or get cash back with your purchase at supermarkets and retail stores when you know you will need the cash. If you have the willpower to not spend cash in your pocket, take out a full week’s worth of cash at once if you must pay a fee.
Savings: $2 per ATM Visit
Home – Kitchen
- Eating Out Eats A Hole In Your Wallet! Don’t get me wrong–eating out in restaurants is a nice treat but can you afford it? Surely you can eliminate one trip per month and save yourself some cash. Consider this–a couple of cheeseburgers, an appetizer, two sodas and a tip at a neighborhood grill will drain you of about $32.50. At that price, you could cook yourself a couple of steaks at home and enjoy a few beers with your meal. You’d probably have money left over for dessert too! Eating out really adds up so definitely review your meals.
Savings: $10 for two people at a moderate restaurant
- Supermarkets Love Selling Prepared Foods. Those subs, pasta dishes, rotisserie chickens and chicken fingers near the deli counter at your grocery store are tough to pass up until you see how much it costs for you to prepare the same food at home. Sure, it can lengthen the time between your purchase and your first bite but it is often worth every second.
Savings: Varies by meal
- Shrink Your Waistline And Grow Your Savings Through Soda This is an easy one that helps your wallet and your weight. Substitute one soda per day with a glass of water. Buying soda in a 12 pack brings the cost down to only a quarter or so per can. Even though it is only a quarter, one soda per day getting substituted with water will save you some cash!
Savings: $7.50 per month for one soda a day
- Paper In Your Cabinets Means Less In Your Wallet. Why are you eating on a paper plate or drinking out of a plastic cup? Are you at a barbecue? If not, use a regular dish and glass for your meal and keep your money in your wallet! You’ll run your dishwasher a few extra times per month but the savings will not go down the drain.
Savings: $10 per month
At The Office
Savings: Up To 6% Of Your Salary
Savings: About $4 per month for basic coverage
Savings: At least $2 per day, $60 per month
Savings: $24/month for two $3 coffees each week
Savings: $12/month for 3 trips a week.
- Stop Smoking! This is a dead horse that continues to be beaten but why throw away so much money? Everyone will be happier once you quit and you’ll save your lungs and your money.
Savings: $42/month for only 3 packs a week
- Cancel Your Gym Membership. I’m a big advocate of the gym but so many people have good intentions and no follow-through. If you’ve signed up for a gym membership and you’re not going, take the trip at least one more time to cancel.
Savings: About $50 per month
- Let Your Hair Grow. I was on a schedule of getting my hair cut once per month. I changed to once every six weeks and I doubt anybody has noticed. This cuts out (pun intended) some of those costly trips each year and saves me a bit of cash.
Savings: $87 per year
How Do You Save Your Money?
Every one of us is frugal in some way so if you have something to add to this list, please do! Leave a comment telling everyone how you save some cash each month and give us an estimate of the amount.
I shut my eyes so I can see. – artist Paul Gauguin
Happiness is not a destination. It is a method of life. – Burton Hills
This morning as I took my kids to school, I was feeling rushed and harried. Stress levels high, my face wore a permanent frown, my mind was in a million different places, and my two youngest kids (3 year old, and 20 months) were quiet in their car seats.
Then I realized: while my mind is elsewhere, I’m missing some prime moments with my kids. And not really enjoying my day.
And so I changed the moment, and in doing so changed my day: we began singing some of our favorite children’s songs. Itsy-bitsy spider, twinkle twinkle, wheels on the bus, ABCDs, I’ve been working on the railroad, the ants go marching two by two … all of the oldies.
Instead of thinking about all the things I had to do today, I brought myself into the present moment. And when we got to school, I took a few minutes to spend time with them. Be present with them. It was truly lovely.
This little incident not only brought warmth and joy into my heart … it brought a realization into my mind: I can either have a stressed, difficult day … or I can have an amazing, wonderful day.
I chose the amazing day.
The rest of the day, I did things to ensure that my day was the best ever. And it was. I had the greatest day … all from simple little things that don’t seem like much, but make all the difference in the world.
Do you have to follow these things step-by-step? Not at all. Find your own methods, or pick and choose a few of these. Main thing, though: take steps to make today your best day ever.
1. Be present. Instead of having your mind elsewhere, bring yourself back to now, in this moment, focused on where you are and what you’re doing and who you’re with. We cannot change things that have already happened, and obsessing over them does nothing to help us now. We cannot predict the future, so worrying about it does nothing to help you either. Instead, focus on now … if something is worrying you, take action … but even better, just be in the moment, and live as if now is all there is. Because it is.
2. Do less. Have a full schedule today? Cut it in half. You don’t need to do everything on that list. I took a few items on my list and moved them to next week. Do less (but focus on the important — not urgent — stuff) and you’ll be less stressed out. If you cut your list down and do only half the things you want to do for today, you’ll have a much better day. You’ll thank me.
3. Get one important thing done. As I said in the previous point, do less but do more important things. When I say important, I mean things that will have a huge impact on your life (personally or career wise) over the long run. Not things that need to be done today or else. Here’s why: If you get something important done, something that will help you in the long run (even if it’s only a step towards a major accomplishment, it’s important), you will feel great! You’ll feel a sense of accomplishment. That makes any day a great day.
4. Plan your perfect life. What would your life be like if you had no restrictions? I’m not talking about living in a McMansion or flying around in jet planes, but what would make you happy. A good step: pick the 4-5 most important things in your life, and build your perfect life around those things, eliminating most of the rest if possible. Plan that perfect life, and then plan the first few steps you need to take to get there. Now schedule those first steps over the next week, including one today. It feels amazing to start taking action on making your life the way you want it to be.
5. Declutter. Even if it’s just a little space — say a drawer or a shelf — decluttering an area of your life can have a wonderful effect on your mood and happiness level. I know it gives my day a boost. When things start to get cluttered (and let’s face it, even the best declutterers among us face clutter creep), I take a few minutes to clear it out. Clearing your desk (at least the surface of it) can be a great way to start.
6. Go for a walk. I was going to write “exercise” but I’m afraid that many readers will just skip over this one. So instead, just go for a walk. That movement, and the fresh outdoor air, will have a great effect on your day. And even better: take a few minutes to enjoy the nature around you as you go for your walk. Clear your head. Calm yourself during a busy time of your day. Think to yourself: “How lucky I am to be alive! How wonderful a world I’m in! What opportunities and possibilities lie before me!”
7. Focus on 3 projects. I wrote about this recently, but you’ll probably hear me repeat it a few times just because of the terrific effect it can have on your productivity and your life: choose only your three most important projects, and focus on them exclusively. Focus on getting them to completion, to the exclusion of all other projects. Do that today. You’ll be amazed at how much you’ll accomplish. I only started doing it recently, but I’m getting so much done that I feel like I was sitting on my hands before this. It feels wonder-tastic!
8. Listen to great music. When I was in the car, after I dropped the kids, an oldie came on the radio: Tommy James and the Shondells singing Hanky Panky. “I saw her walking on down the line (yeah) … you know I saw her for the very first time …” Well, I love songs like that (call me old if you like) and I started dancing in my seat. You might be turned on by hipper songs (or is “hipper” not a trendy word anymore?) but whatever music gets you going, jam it on your iPod or car radio. Or while you work. It’s a great time! “Hey, pretty baby, can I take you home!”
9. Watch a sunrise or sunset. Trite? Yes, definitely. But does it work? Yes, definitely. I took the time to enjoy the sunset on my way home today. Mmmmm. It was lovely. It just fills me with warmth. Sunrises are even more beautifuller!
10. Spend time with a loved one. Another obvious one, perhaps, but there’s nothing better, really. When I spent even just a few minutes with my two babies this morning, it filled me with a joy unequaled anywhere else in life. Then I spent some time with my wife, after work, and let me just say that’s about as good as it gets too. Even if you don’t have a spouse or kids, there’s someone in your life that you value … make time out of your day today to spend time with them … and not just to watch TV, but to actually be with them, talk with them, bond with them. It works.
Have some of your own methods of making today an awesome day? Share in the comments.
Editor’s note: This is a guest post from Cyan Ta’eed, editor of FreelanceSwitch.
Many of us wish we were one of those people who walked into a room and had friends-to-be flock to them. Anyone would agree that those of us who make friends easily and are innately likable will probably have an easier and more pleasant time of things than those who are incredibly shy or find it very hard to make friends.
Little do many of us know that making a positive impression is far easier than we might think. But before I get started with that, let me let you in on a little secret:
Everyone is just as shy as you are.
Everyone… in the whole world. Some have learnt to hide it a little bit better or simply ignore it, but every one of us has the same fears and self-doubts.
I’ll qualify this by saying that I am regularly told that I am good with people and that I appear very confident in social situations. I don’t say this to brag, but because if you asked me I would tell you that I am very shy and insecure and overcome it by pure force of will.
This insight led me to ask some of the people I consider to be confident and very socially skilled. The uniform answer: I’m shy but I work at it.
It is incredibly liberating to realize that no matter how you shy you might be, the person you’re nervous to introduce yourself to is just as shy as you are. In fact, they’d be relieved if you took the first step. With this in mind, here are eight essential tips to overcoming shyness and making a good impression:
1) Introduce Yourself. This sounds so basic, but many people seem afraid to do it! Say you’re standing next to someone at a party, or you’ve run into someone with a friend and they’ve forgotten to introduce you. Our little shy alter-ego tells us at this point that no one wants to know our name and we should just keep quiet. I can guarantee that a big smile and a simple “my name’s blank, what’s yours” will be all you’ll need to get the ball rolling. Do it straight away because the longer you wait the harder it will be.
2) Don’t Feel the Need to Qualify Yourself. We’ve all been in a situation where a new acquaintance has gone to great pains to express just how great they are. Whether it’s how fantastic their job is, how much money they have or how hot their girlfriend is, it never leaves a good impression. However, when we’re in a stressful social situation ourselves, suddenly the temptation to prove that we’re socially worthy rears it’s ugly head. A humble but accurate description when asked is all that is needed, and if you make people feel good about themselves that’s the best social qualifier of all.
3) Ask More, Talk Less. People love to talk about themselves. It is the most interesting topic in the world. You know the best way to get people to enjoy your company? Ask the questions that let them talk about their lives. And then listen with interest. Simple as that. And if you’re worrying that you won’t have anything to ask, I heard a very socially savvy friend ask an acquaintance what fillings he liked most in his sandwiches. He was enamored with her. Trust me, you’ll think of something!
4) Be Generous. I’m not talking about buying drinks or a meal, but rather being generous in your opinion. It is all too easy to judge someone who says the wrong thing or acts a little differently from what we expect. However we have all had days when we make a terrible first impression by making an off joke or just saying the wrong thing because of nerves or a simple slip of the tongue. If you reserve judgement and spend time making that person comfortable you will not only spread some good karma around but will earn their eternal gratitude.
5) Don’t Judge a Book By Its Cover. I know a model. She’s absolutely stunning, yet appallingly shy. If a less attractive woman were to act as she does, she would be sympathized with, understood and efforts would be made to put her at her ease. My model friend is labeled stuck up and rude. Do not assume that if someone is cold it is because they think they are better than you or don’t have time for you. That may happen in high school, but thankfully that type of behavior is rare in the real world. If someone is cold it is most likely because they are very shy and insecure. Remember that and don’t be shaken if someone doesn’t respond as warmly as you would like.
6) Remember a Detail. Everyone wants to feel special, and we’re all looking for someone else to give us evidence that we are. If you’ve met someone before, remembering their name and a detail about them will be the greatest gift you can give them. This can be hard, but once you start getting control of social nerves it will become easier.
7) Compliment Others. I’m not suggesting you compliment someone for the sake of it, but if you genuinely like something then go ahead and tell them! Everyone loves a compliment, they start conversations and they give people confidence. I concede that women find it easier to compliment one another, but a genuine compliment from by either sex will never fail to create a generous atmosphere.
8) Think of Others. We hear this all the time, but it bears repeating. When in social situations, stop thinking about yourself and think about the other people there. If someone wants to join your conversation then make it easy for them. Help the host with serving or clearing away. Introduce people to one another. In short, get out of your own head and make sure others are having a good time. They will be truly grateful and you’ll be distracted from your own nerves!
Cyan Ta’eed is the editor of FreelanceSwitch. For more articles by her, see her blog or subscribe to its feed.
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