Budgeting and Saving
Are you sold on creating and living on a budget? If you have any doubt, consider the Latte Factor. Here is a great article to get your wheels turning: The Latte Factor Explained
Now let's say your Latte Factor is $5. If you save $5 each day, you can put it in a shoe box, or you can invest it in a savings account that pays interest, or a fee paid for the use of money.
As you will learn later on, there are two kinds of interest: Simple and Compound.
- Simple interest is paid only on the principal or original amount put into savings.
- Compound interest is interest paid on the original amount, plus the growing amount of interest.
Let's see what that means... I'll show you the money! Go to Hands On Banking: Save, Invest & Build Wealth. Watch Lesson 2. In 30 years, earning compound interest can increase your bank account by over $72,000!!!
What can you do with the money you save? Let's look at Hands On Banking: Smart Spending. Watch lessons 1, 2, and 3. Also watch Hands On Banking: Save, Invest & Build Wealth.
Let' practice. Over the years, you have saved $6000. How much will that grow to? Use the calculator.
- Invest $6000 at 7%. How much will you have in 30 years?
- How much will you have in 40 years?
- Now let's assume you choose an investment that earns 10%. How much will you have in 30 years?
- In 40 years?
Keep in mind as you set your goals, the Rule of 72. The Rule of 72 is a quick way to calculate how long it will take for you to double a sum of money, based on an investment. Divide 72 by the interest rate. The quotient is the number of years you must keep the investment!