After the previous posts on FINANCIAL EDUCATION (#1, #2, #3 and #4), CryptoBlonde is back to start a new series on finance. I started my path to financial freedom at a young age with my parents' teachings, recently I discovered that it can be really achievable just by following a few rules. Stay here and see how you too can make that dream come true.
Everything starts by following the previous teachings:
- Make better use of your personal budget
- End your debts
- Avoid unexpected expense
To do that, you need to develop your personal financial education and be able to do good personal planning, start to save, learn to invest and have an emergency reserve.
How can you start saving?
Did you know that by:
- Not eating a $ 2.5 donuts a day you can save $ 912.50 in one year
- Quit smoking a $ 15 pack of cigarettes you can save $ 5,475.00 in one year
Do this and put aside 4 dollars of change in coins that are left over from your daily purchases, that gives you another $ 1,460.00 in one year.
Only with these three savings you are saving $ 7,847.50 in one year
Okay, I saved almost eight thousand dollars, now what?
Have you forgotten? Learn to invest! Generate passive income When you subscribe to a savings or investment product, there is an associated interest rate. This interest rate is a percentage that corresponds to the amount that the institution will pay you for investing your money.
The simple interest rate is calculated based on the initial investment, simply multiplying the rate by the initial value. Taking your 8000 dollar savings, imagine that you make an investment for 5 years with the interest to be paid at a rate of 5%. To calculate the value of interest at the end of a year is very simple, just multiply the value of the investment by the rate:
$ 8,000 x 5% = $ 400 / year * 5 years = $ 2,000
The total of your capital at the end of 5 years will be $ 10,000.00
If in the simple interest the initial amount is considered for the calculation, then you will have compound interest, therefore there is a reinvestment of the interest. What? The simple interest instead of being paid, is added to the investment, thus creating a new capital greater than the previous one. Thus, there is a capitalization of simple interest. Year 1: $ 8,000 x 5% = $400 (Simple interest)
In the second year, we will reinvest the $400, so:
Year 2: ($8000 + $400) x 5% = $420
In the third year, to the initial capital we add all the interest previously obtained, that is:
Year 3: ($8000 + $400 + $420) x 5% = $441
Year 4: ($8000 + $400 + $420 + $441) x 5% = $463
Year 5: ($8000 + $400 + $420 + $441 + $463) x 5% = $486
The total of your capital at the end of 5 years will be $ 10,210.00
That's a plus of $210 !!!!
Are you still there? Are you still following....so let's take a few steps back and show you how in fact after 5 years you can save and earn by investing more than $45,000.00
After saving $ 7,847.50 in one year, you repeat the process of saving over the next 5 years and start compounding your savings
Year 0: $7,847.50 of savings
Year 1: $7,847.50 + 5% = $8,239.88
Year 2: ($7,847.50 + $8,239.88) + 5% = $16,891.75
Year 3: ($7,847.50 + $16,891.75) + 5% = $25,976.21
Year 4: ($7,847.50 + $25,976.21) + 5% = $35,514.90
Year 5: ($7,847.50 + $35,514.90) + 5% = $45,530.52
The total of your capital at the end of 5 years will be $ 45,530.52
Conclusion
Little savings does mean a lot over the years but many people still doesn't understand how little changes can make big diferences !!!
Compound interest provides that by reinvesting money, you end up getting a higher return, this is a way to accelerate the growth of the investment, since instead of receiving interest in your account, you are investing that amount again, which, in the long run, will generate greater revenue.
Thanks for reading, it means a lot for me !!!
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