| |
Start young guarantees you win the compounding interest lottery.
Are you counting on winning the lottery to secure your financial future? According to Farm Credit of Western New York, 16% of Americans are. Unfortunately, for those 16 percent, you would have better odds playing the tables in Vegas or getting struck by lightning.
Sure most of us know counting on winning the lottery for retirement is a big gamble. But for young adults if you're expecting social security or pension plans to secure your retirement that is just as risky. Chances are ' for those of you under 35 - you won't receive much from any of these. Don't be scared, there is an easy way to make sure you can afford to retire young without a lot of effort on your part.
What if I told you for only $73 dollars a month you have a good chance at enjoying a $1,000,000! No not the lottery ' by investing $73 a month starting at age 18 you or your child could reach the million dollar mark without a lot of effort. You can live worry free and relax knowing that you are financially secure well before you reach retirement age.
Young investors have a huge advantage and by following a simple and consistent plan you will have what 16 percent of people are desperately hoping for everyday. A lottery jackpot that is guarenteed! Fix the game, retire young and secure your own big winner by using a powerful financial force.
This powerful money principle, that will almost guarantee every young person generates their own lottery winnings, is 'compounding interest'. Compounding interest has a snowball effect on your money and the earlier you start a consistent investment plan the easier achieving financial freedom will be.
Compounding interest? If you have you ever experienced debt you've seen compounding interest work against you. You pay your bill every month but your credit card bills keep getting bigger and bigger. That's compounding interest working against you. If you have experienced this then you have felt how powerful the effects of compounding interest can be. Avoid the debt traps that have plagued so many of us and get compounding interest to work your favor.
The definition of compounding interest is: income from interest that is earned by the amount you invested plus the interest already earned from prior periods. To break it down, your investment is paying you money on the principle amount you invested plus the return you that you have already earned. Basically you are generating money from your hard earned cash that you personally invested and what that original investment has already paid you.
By getting compounding interest working in your favor you are able to make money off money you already made. This creates a snowball affect on your money where it is able to grow larger and larger over time. The earlier you start, the more time your investments are able to benefit from the effects of compounding interest.
Just by reinvesting money that you're investments returned, the money you earned in interest last year is making you money. After 15 years you have 15 years of interest earnings making you money.
Jump online and check out free compounding interest calculators to see for yourself. You'll be motivated to start a saving and investing plan once you see for yourself just how powerful compounding interest is.
Calculating compounding interest. Take a few moments and play with a compounding interest calculator. Seeing the effects of compounding interest first hand is a powerful motivator. You can access a compounding interest calculator by visiting www.FreeBy30.com/investing.html. What's more, you can calculate it manually by using a hand held calculator. In order to do so just enter the initial amount that you are planning on investing or already have invested. Then multiply that by the rate of return you are estimating.
To illustrate, if you had $2,000 invested and thought you would get a 12% return then you would multiply $2,000 x 1.12 = $2,240. The second year you would use $2,240 x 1.12 = $2,509. After 10 years that would be up to $6,212, $19,293 after 20 years and $59,920 in 30 years. That's $59,920 from a $2,000 original investment ' that's an example of the power of compounding interest!
Compounding interest goals. This section will give you investment goals that you can attain using the power of compounding interest. The examples presuppose that an investor is starting with $0 and using an annual return of 12%.
Investing $100 per month and you may reach the million dollar mark in 38 years. Investing $200 per month and you may reach the million dollar mark in 32 years. Investing $400 per month and you may reach the million dollar mark in 27 years. Investing $700 per month and you may reach the million dollar mark in 22 years. Investing $1,200 per month and you may reach the million dollar mark in 17 years.
How leverage can boost the effects of compounding interest. Using leverage will supercharge the effects of compounding interest. Using real estate investments is one way to benefit from leverage.
With investments in the stock market for example, you are earning interest based on the amount you invest. When you purchase real estate your returns are based on the value of the asset you control. To illustrate, if you had $20,000 invested in the stock market and your stocks appreciated 10% you would make $2000 the first year. Not bad.
Now with real estate you could purchase a home with a 10% down payment. That would allow you to buy a $200,000 property with the same $20,000. Your return would be calculated off the value of the property - $200,000 in this case. So the value of your property after the first year would be $220,000 ($200,000 x 1.1).
If the property continues to appreciate at 10% annually, the value of the property would be $242,000 the second year and $518,748 after 10 years. The power of compounding interest works faster when you have the ability to leverage your investments. Investing in real estate may allow you to amplify the power of compounding interest.
Compounding interest - your advantage. Using the power of compounding interest - whether in the stock market or real estate investments ' will give you a many financial benefits. It is important to note that the sooner you are able to start saving and investing money the greater financial benefits you will experience.
So the next time you're thinking about dropping ten bucks on the lottery ' think again. Go for the sure lottery jackpot by investing that in your future.
Vince Shorb, creator of 'Financially Free by 30' home study course and the leading young adult financial literacy expert, prepares young adults for the financial real world. Get your free copy of his latest book and instructional videos at http://www.FreeBy30.com .
 EasyPublish™ this article - publishers click here
More articles by Vince Shorb
- Getting a secured loan (Gordon Parkes)
A secured loan can be an excellent way to fund a family holiday, or to pay off unsecured loans. Find out how to get a cheap secured loan. - Gold Credit Cards (Richard Greenwood)
If your wanting more from your credit card than just a way to spend money and you earn a good income then a Gold card may offer you some extra bonuses such as insurance or priority service.
|