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How Money Works

When it comes to finances, how much do you know?

If you're like most people, you probably know little about personal finance. Perhaps you think long-term security is impossible on your income. But, the truth is, no matter what your income level, you can achieve financial security. You just have to take the time to learn a few simple principles about how money works.

The High Cost of Waiting

Want to save $1 million dollars by age 67? You'd better get started soon.

The longer you wait, the more you'll have to put away each month to reach your retirement goals.

27 years old? You have to put away $214 a month to reach $1 million dollars.

Start at age 37, and you're putting away $541 a month to reach your goal.

Begin at age 47, and you'd have to put away $1,491 a month.

Wait until age 57, and you're putting away a hefty $5,168 a month.

Wait until the last minute (age 62) and you'd have to stash $13,258 a month to reach $1 million by age 67.

So, the sooner you start saving, the fewer dollars you'll have to put away each month to reach your retirement goals. Don't pay the high cost of waiting!

Pay Yourself First

Think you don't make enough money to save some of it? Think again!

If you earn $25,000 a year for 40 years, you will have earned $1 million dollars! Earn $35,000 for 40 years, and you've earned $1.4 million dollars. And if you earn $45,000 for 40 years, you'd have made $1.8 million dollars!

Pay yourself first and you can get ahead in the savings game. Here's what can happen when you save just $100 a month for 40 years:

At three percent interest, you would have about $93,000.

At five percent interest, you'd have about $153,240.

If you got a nine percent interest, you'd have about $472,000.

That's the power of paying yourself first! After all, it's not what you earn - it's what you keep!

 

 

Theory of Decreasing Responsibility

According to the Theory of Decreasing Responsibility, your need for life insurance peaks along with your family responsibilities.

When you're young, you may have children to support, a new mortgage payment and many other obligations. Yet, you haven't had the time to accumulate much money. This is the time when the death of a breadwinner or caretaker could be devastating and when you need coverage the most.

When you're older, you usually have fewer dependents and fewer financial responsibilities. Plus, you've had years to accumulate wealth through savings and investments. At this point, your need for insurance has reduced dramatically, and you have your own funds to see you through your retirement years.

 

 

Rule of 72

Do you know the Rule of 72?. It's an easy way to calculate just how long it's going to take for your money to double.

Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.

As you can see, a one-time contribution of $10,000 doubles six more times at a 12 percent return than at 3 percent.

Years3%6%12%
0 $10,000 $10,000 $10,000
6     $20,000
12   $20,000 $40,000
18     $80,000
24 $20,000 $40,000 $160,000
30     $320,000
36   $80,000 $640,000
42     $1,280,000
48 $40,000 $160,000 $2,560,000

How many doubling periods do you have in your life?

The Power of Compound Interest

The Power of Compound Interest shows how you can really put your money to work and watch it grow.

When you earn interest on savings, that interest then earns interest on itself and this amount is compounded monthly. The higher interest, the more your money grows!

If you saved $200 each month, after 35 years, your money would have only grown to $148,680 at a three percent interest rate.

At a six percent interest rate, it would have grown to $286,370.

If you received a twelve percent interest rate on your savings, your money would have grown to $1.3 million!

The sooner you start to save, the greater the benefit of compound interest.

 

 

Debt Stacking

By taking into account the interest rate and amount of debt, debt stacking identifies a way for you to pay off your debts. You begin by making consistent payments on all of your debts. The debt that debt stacking suggests that you pay off first is called your target account.

When you pay off the target account, you roll the amount you were paying toward your next target account. As each debt is paid off, you continue this process. Debt stacking allows you to make the same total monthly payment each month toward all of your debt and works best when you do not accrue any new debts.

You continue this process until you have paid off all of your debts. When you finish paying off your debts, you can apply the amount you were paying towards your debt toward creating wealth and financial independence!

 

 

About PPL Finance Services

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  +61 8 9355 5822
  +61 8 9355 5833
  Suite1/160 Burswood Road, Burswood Western Australia

 

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