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Do You Know What Is The Financial Rule Of 72?... No? Find It Here!
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Joe makes a $30,000 a year as a technician $ 2000/month tax free. Age 38 |
Robert makes $80,000 as a Company Manager $4800/month tax free. Age 38 |
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Joe bought a 3 year old small car for 7000 and he pays about $160 a month. Joe rents an small apartment for $600/month Joe wears a 40 Dollars watch. Joe eats in restaurants once a week and expend only $20 Dollars or $80 per month. Joe goes to bars and night clubs only once every 6 weeks and expend only 60 Dollars or $40 average per month. Joe expend about $200 each 3 months on clothes and shoes or about 67 Dollars a month Joe expend $100 a month for his car gas. Joe pays $400 per year for his car services or about $33 per month. Joe pays $75 a month for his car insurance. Joe expend about 300 dollars a month for groceries and buy for low price retailers
like WAL- Until this point Joe expenses total $1355 per month. Joe expend $150 monthly in other things, so he is now able to save an average of $495 Dollars a month that he puts in his bank account. Joe has been saving an average of 300 Dollars per month during the last 10 years, if he saved his money in a not interest earning account he would have by now only $36,000. But because Joe understood the compound interest gains, he invested his savings on account that paid him $40,000 Dollars on interest during these 10 years, so hi now has in his bank $76,000 and counting. Thanks to this money he is ready to buy a 2 bedroom 2 units duplex house with a $30,000 down payment and for only $800 a month. He will rent one of the duplex for $700 a month and will pay only $100 from his wallet, saving additionally 500 a month for rent that he no longer needs to pay. In 2 or 3 more years he will be ready to buy more property, his cash flow will continue up while his property value will increase between 5% to 10% per year. He is planing to retire at 60, so when he retires more likely he will be wealthy.
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Robert bought a new sport car for $35,000 and he pays about $500 a month. Robert rents a luxury 3 bed rooms apartment for $2000/month, so he can impress his friends. Because of his big apartment hi pays about $200 monthly on gas and electricity Robert wears a 500 Dollars watch. Robert goes to fancy restaurants 2 times a week and spend about 80 Dollars per week or $320 per month. Robert goes to fancy bars or night clubs once a week and expend 100 Dollars or 400 a month. Robert spend about 250 Dollars a month for fancy brand clothe Robert pays about $160 a month for his car gasoline Roberts pays about $900 a year for his car service, or average $75 per month. Robert pays $120 for his car insurance because it is a sport car. Robert expend about 500 in groceries and wine because he buys on fancy stores and buy only “best brands” He pays for cell phone and other services about $150 a month Until this point Roberts expend about monthly $4,675 Dollars a month His leftover is max $175 per month, but from here he has to pay for other items and credit cards, so he is basically left with nothing to save. Robert has been saving an average of 75 Dollars per month during the last 10 years and he has accumulated $9000. Robert hasn’t accumulated sufficient money for a house down payment and because of his life style could take many years more to be ready, so is more likely that he will retire depending on social security income and maybe on very small retirement account. (Do you self reflect in Robert?, do you know another Robert?, I bet you do!) |
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Conclusions and my advice: It’s important to secure a job above the survival level in order to cover the basic needs and some leftover for savings. Definitely it will be much harder (but not impossible) to achieve financial independence if you make only the minimum wage, if this is the case you have to get into college to improve your income potential, get other better paid job or work overtime. Then you have to exclude from your shopping list al those items that aren’t necessary such as expensive cell phones, ornamental car accessories, dinning constantly in restaurants, wear expensive clothes etc. As is said before, pay yourself first, after you have separated your money for your basic survival bills and needs, assign a percent portion of you income or fix amount to your savings account, this must be done without excuses, after you have paid this money to your self then you can expend in other items but with limit and moderation. Don’t waist your life and money to impress others, because those who you are trying to impress will never be at you side if you become poor, old and broken. In short: Getting wealthy is a smart combination of steady income, savings and smart investments. If you don’t save any money, you wont have any money to invest. Read the rule of 72 below.
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Interest rate % |
Years that takes to double your money |
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0.3 |
240 |
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1 |
72 |
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2 |
36 |
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4 |
18 |
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6 |
12 |
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8 |
9 |
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10 |
7.2 |
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12 |
6 |
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15 |
4.8 |
Must read article.....
Do you know what is the financial rule of 72?
The rule of 72 has been a financial guys long preferred illustrative way to show how the compose interest adds up in a savings or investment account over time. Basically the rule states the years that you invested money will take to double based in a given yearly fix interest and is given by the formula:
Years to double = 72 divided by the interest rate
Example 1:
How long will take to double my $10,000 savings at 6% interest
Rate? Answer: (72/6) = 12 years
Example 2:
How many years at 10% interest? Answer= (72/10)=7.2 years
From this formula we can derive the table at right for different interest percent rates:
It’s appropriate to say that this formula is not 100% exact but it’s very close and is
being used for practical illustrative purposes.It’s important that you teach yourself
some finances and in this page you will find plenty of sponsors and links that will
help you to gain more information in money topics and services. The table shows a realistic interest earning spectrum so it’s your job find the best option for you, some investments instruments pay even more than 15% but at added risk, but also they are highly secure ones that pays 10 or 12 percent fix annual interest.
Hint: Use the savings calculator at right to confirm this rule.
Put any amount on the initial investment
Put cero on monthly savings
Select the desire annual interest rate
Input the years that your money that will to double
The result will be the money that you will get after such years in the bank at the selected interest rate.
Why most people don’t retire wealthy .....
By MS; Copyrights
In my long years of experience I noticed that most people struggle to get financially afloat when are close
to retire, in most cases as retirement time approaches people rather to be happy and planning to enjoy
their retirement time, and do what they dreamed about like taking that long delayed tropical vacations trip,
expend more time in your preferred hobby or just enjoy more family time people gets into a panic mode trying to figuring out how they will pay for their bills with their small social security pension. As is being said many times before in the financial world, “People do not plan
to fail, rather people fail to plan” and there is nothing more true than this.
In order to make this article highly illustrative and to get into the point I will present two typical scenarios based on two persons, one with less income and one the other one with higher income, one of them will get wealthy over time. I have made this example with two single guys for simplicity, this example is based on real cases of people I have met but applies also to married couples and families with similar expenses habits. You can find many cases like this in the USA, but by far the Robert case is much more common, lets call the guy with lesser income “Joe” and the one with more income “Robert” .
The smart Joe and the expensive Robert.......
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