saving: the earlier you start the less you have to do

SAVING: THE EARLIER YOU START THE LESS YOU HAVE TO DO

DISCIPLINE AND SACRIFICETHE BENEFITS OF BUYING SOMETHING ARE IMMEDIATE, THE BENEFITS OF SAVING ARE NOT.

THE CONSEQUENCES OF SAVING ARE IMMEDIATE, THE CONSEQUENCES OF BUYING SOMETHING ARE NOT.

WHAT DOES THIS MEAN?

WE PREFER INSTANT GRATIFICATION TO DELAYED, THAT’S WHY SAVING MONEY IS

SO HARD.

Interest: How is interest calculated?

COMPOUND INTEREST is the accumulation of money where the interest earned remains in the account to earn additional interest in the future. In other words, you earn interest on your interest.

The equation for compound interest is:

Total = Principal (1 + rate)years




Lets say you have $20,000 to invest at 7% interest. How much money will you have in your account at the end of 5 years?

Total = 20000 (1 + .07)5

This result is a total of $28,051.03 at the end of 5 years.




Lets say you have $20,000 to invest at 7% interest. How much money will you have in your account at the end of 5 years? This result is a total of $28,051.03 at the end of 5 years.

Now calculate the same problem for 10 years and 20 years.

Did you get $39,343.03 for 10 years?

Did you get $77,393.69 for 20 years?


Compound interest can be further complicated by the number of times PER YEAR the interest is calculated.

For example, is the interest calculated bi-yearly or twice per year? Is the interest calculated quarterly or four times per year?

The following table shows the final principal (P), after t = 1 year, of an account initially with C = $10000, at 6% interest rate, with the given compounding (n). 1 (yearly) $ 10600.00 2 (semiannually) $ 10609.00 4 (quarterly) $ 10613.64 12 (monthly) $ 10616.78 52 (weekly) $ 10618.00 365 (daily) $ 10618.31


The Rule of 72……states that 72 divided by the interest rate will result in the number of years it will take your investment to double…...

Interest: The Early Bird Gets the Worm

How interest rates affect your Return on Investment (ROI)


Mary and John graduate from college in the same year. Starting at age 22, Mary invests $2000 per year for 7 years and stops. John

sees that Mary has saved a lot of money and begins investing $2000 per year at age 29 and continues for the next 33 years. Who will have

the most money with which to retire at age 62?


Mary’s investment of $14,000 resulted in $628,329 when she reached age 62.

John’s investment of

$66,000 resulted in $600,082

when he reached age 62.

Saving Money

Important ideas to keep in mind:•Set goals for saving (stereo, car, home, retirement)• Let the magic of compounding work for you•Save BEFORE you spend•Direct deposit can make saving easier (out of sight, out of mind)

saving: the earlier you start the less you have to do

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