According to a recent article, 40% Americans don’t know where there money goes. We all have a tendency to spend all that we earn. When we get a pay rise we think of different ways how to spend more money and improve the life style. What is the use of earning a million dollars and still living in debt? We all like to have a debt-free life. The first step towards a debt free life and attaining a sound financial life style is to learn how to save. In this article, I like to share with you some ideas how to start saving money.
“Little drops of water make a mighty ocean”
Rule of 72
If you want to make money fast/in less time, the best way to achieve this is by saving money.If you earn one dollar, try to save at least 20 cents. The first rule of saving/ investing is to take it off the top of your salary. You should try to save at least 10% of your salary.This is the suggestion of Bogleheads, a group of reputed investors from Vanguard investment company .
If you don’t know what is ‘Rule of 72’, I like to explain it. This rule illustrates how anyone can transform small savings into large fortune. It calculates, how many years it takes an investment to double its value. If you divide 72 by the annual rate of return, you will get the number of years it will take it for your investment to double its value. For instance, an investment with 8% return will double after 9 years (72/8 = 9) .
Imagine that a child is born today and you want your child to get $1 million in 65 years in a stock mutual fund that pays an average annual return of 10%. How much do you have to pay each day? Infact, a daily deposit of 54 cents will compound to more than $1 million in 65 years. This is the beauty of compound interest and the benefit of having patience to wait.
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