What motivates you to wake up at 4 am and leave rushing to get to work? What goes through your head when you send your kids to school to have a better future than yours? What worries you and your wife if you were to pass away? What is your worry every weekend or biweekly? Most likely money is the answer to each and every single one of those questions. Every single one of us finds a way to bring money home in order to meet our obligations and cover our basic needs like our home, food, clothing, health, education and etc.
Is it that only your job, career or business is the only way to generate money? NO, money can also make more money! Banks do this. They take your money, they lend money or invest it, and they consequently make more money. Investors purchase stocks or bonds and make more money of their investments.
How do you generate more money? Perhaps you work over time at work, have a part time job, or sell products/services from your multilevel business, even drive for Uber/Lyft. No matter what you do, all of this just takes more of your personal time in order to make more money. In your perspective the formula to make more money is having a job and good health. The problem is that work and your health will start to deteriorate throughout the years. When that time comes if you didn’t prepare for this, you will end up being broke and in dire need for assistance.
For someone like you that only lives of their salary and your personal work ethic, we give you this information on how to make intelligent decisions on your money and learn how to create a solid foundation in the event you were unable to work. Here are a few tips:
- SAVE MONEY EVERY MONTH AND DO IT AUTOMATICALLY- directly from your salary or from your bank
- PROTECT YOUR MONEY FROM INFLATION- the value of the products you purchase is constantly increasing with time and your money’s purchasing power decreasing.
LEARN THE POWER OF MONEY, TIME AND COMPOUND INTEREST
The best way to learn about the impact of time and compound interest is learning about the Rule of 72. This rule is based on the use of 72 as a logical number, which when divided by the interest rate you receive in your savings; the result you get is the number of years your money needs to be invested to double.
Let’s look at the following examples:
EXAMPLE ONE:
72 divided in 0.04 is equal to 1,800
That means that if you invest $ 1,000.00 and earn 0.04% annual interest, you will have
$ 2,000.00 within 1,800 years.
EXAMPLE TWO:
72 divided by 3 is equal to: 24
That means that if you invest $ 1,000 and earn 3% annual interest, you will have
$2,000 within 24 years.
EXAMPLE THREE:
72 divided by 10 equals: 7.2
That means that if you invest $ 1,000 at 10% annual interest, you will have $ 2,000 within 7.2 years.
Now that you know this little secret, you just have to search where you can earn good interest rates and how long it would take you to double your money.
There is another principle in money management that you should know!
MORE GAINS, MORE RISK
This means that if you want to make higher interest rates in your money you need to take more risks. For example, banks pay very low interest rates, usually 0.03% or perhaps up to 1% this is due to the simple fact that their client’s money is guaranteed by the Federal Deposit Insurance Fund (FDIC) up to $ 250,000. Credit Unions pay a higher interest rate than banks, but the interest is still low because the money is guaranteed.
Annuities are accounts in insurance companies, for your retirement. They pay a higher interest rate than banks, and the money is guaranteed. There are fees to maintain the account and certain restrictions to access your money. In a fixed annuity you can have a 4% interest and in an indexed annuity you can obtain an 8% interest depending on the stock market indexes. Due to the annuity being guaranteed the interest rate is a 1% minimum.
To go over what we covered, if you are looking for an account that your capital is guaranteed, you can find a bank account that will pay you 0.01% up to a 4% in an insurance company. Now if you want to have a higher yield, then you would need to start looking at the stock market option. When you invest in the stock market you are risking your money because you are investing in stocks and you are becoming the owner of the companies where you invest. Even if you “own a small part of the company”, you are entitled to your profits and also to the surplus value of your shares.
The returns of the shares can be a very high percentage such as 50% if you invest in Amazon or even lose -2.5% in Tesla shares. You must be willing to win and lose; for this you need to research. You must develop a keen eye for when to invest and when to withdraw your capital to receive your gains and avoid losing your money. If you would like to invest in the stock market, the best way to go about it is doing it through a mutual fund account. Although the funds are subject to market volatility, you make small investments, you have an advisor who handles your money professionally and they diversify the risk of your investment by investing it in more than 100 different companies. They choose, monitor, make the investment and know when to sell the stocks for you. There are mutual funds with more than 60 years of experience in the market and their profits are a historical average of 10% per year.
For you to be able to see the impact these high interest rates have throughout time, here are some examples.
If you saved $1,000 per year, since you are 25 years old up to the age of 65, illustrated here is 3 accounts for you to be able to compare for yourself.
You would save after 40 years, $1,000 per year that in total you would have $40,000.
At the end of 40 years you would have in each account:
COMPARING 4 WAYS TO ACCUMULATE MONEY
| UNDER DE MATRESS 0% | BANKING ACCOUNT 0.03% | ANNUITY 3% | MUTUAL FUNDS 10% |
|---|---|---|---|
| $ 40,000.00 | $ 40,246.00 | $ 77,663.30 | $ 486,851.81 |
Can you see the impact the different interest rates have on your money? Simple question:
Where do you spend $1,000 per year? That is less than $100 a month. What impact would this money have in your life if you started saving it? That would be the best financial decision you would make. If you didn’t start putting this money away, you can be in real trouble at the time of your retirement.
Stay tuned for upcoming publications were we will surely continue to touch on these topics that can be of great interest to you.
