Would you
believe $465.84? Or more?
If you buy a cup of coffee every day
for $1.00 (an awfully good price for a decent cup of coffee, nowadays),
that adds up to $365.00 a year. If you saved that $365.00 for just one
year, and put it into a savings account or investment that 5% a year,
it would grow to $465.84 by the end of 5 years, and by the end of 30
years, to $1,577.50.
That’s the power of “compounding.”
With compound interest, you earn interest on the money you save and on
the in the interest that money earns. Over time, even a small amount
saved can add up to big money.
If you are willing to watch what you
spend and look for little ways to save on a regular schedule, you can
make money grow. You just did it with one cup of coffee.
If a small cup of coffee can make such
a huge difference, start looking at how you could make your money grow
if you decided to spend less on other things and save those extra
dollars.
Of you buy on impulse, make a rule
that you’ll always wait 24 hours to buy anything. You may lose your
desire to buy it after a day. And try emptying your pockets and wallet
of spare change at the end of each day. You’ll be surprised how quickly
those nickels and dimes add up!
Speaking of things adding up, there is
no investment strategy anywhere that pays off as well as, or with less
risk than, merely paying off all high interest debt you may have.
Many people have wallets filled with
credit cards, some of which they’ve “maxed out” (meaning they’ve spent
up to their credit limit). Credit cards can make it seem easy to buy
expensive things when you don’t have the cash in your pocket – or in
the bank. But credit cards aren’t free money.
Most credit cards charge high interest
rates – as much as 18 percent or more – if you don’t pay off your
balance in full each month. If you owe money on your credit cards, the
wisest thing you can do is pay off the balance in full as quickly as
possible. Virtually no investment will give you the high returns you’ll
need to keep pace with an 18 percent interest charge. That’s why you’re
better off eliminating all credit card debt before investing savings.
Once you’ve paid off your credit
cards, you can budget your money and begin to save and invest. Here are
some tips for avoiding credit card debt:
· Out away the plastic
Don’t use a credit card unless your
debt is at a manageable level and you know you’ll have the money to pay
the bill when it arrives.
· Know what you owe
It’s easy to forget how much you’ve
charged on your credit card. Every time you use a credit card, write
down how much you have spent and figure out how much you’ll have you
pay that month. If you know you won’t be able to pay your balance in
full, try to figure out how much you can pay each month and how long
it’ll take to pay the balance in full.
· Pay off the card with the
highest rate
If you’ve got unpaid balances on
several cards, you should first pay down the card that charges the
highest rate. Pay as much as you can toward that debt each month until
your balance is once again zero, while still paying the minimum on your
other cards.
The same advice goes for any other
high interest debt (about 8% or above) which does not offer the tax
advantages of, for example, a mortgage.
Now, once you have paid off those
credit cards it is time to set aside some money to save and invest.
