Written By: Nina Avery, CFP ® | Avery Safe Money Solutions
Heard of the rule of 72? It is a basic calculation that lets you know approximately how long it will take to double your principal based on the interest rate being applied. If you are earning – it’s AWESOME. If you are paying – it’s SCARY.
Let’s look at a savings account paying 2% with a principal investment of $1,000. If we divide our interest rate into 72 (72/2) we can see that it will take 36 years for our initial $1,000 investment to double. If we are earning 10%, we can double our initial $1,000 investment in approximately 7.2 years (72/10). That sounds better than 36 years right? So compounding is amazing if we are earning at a good rate.
Now let’s look at a debt with the same $1,000 initial principal balance. Let’s say our interest rate is 14.99%. How long will it take for our $1,000 initial balance to double to $2000? Approximately 4 years and 9 months (72/14.99). So in just under 5 years we doubled our initial $1,000 debt to $2,000. Not amazing – SCARY. Raise the interest rate; shorten the time it takes to double the debt. Every penny you are paying in interest costs you more than a penny lost in your retirement account; because you not only lose the penny, you also lose what that penny could have earned.
As you can see, it is not difficult for this to become a problem in a hurry. If you are earning 2% or even 10% and paying 14.99%, it is easy to see how you may never accumulate enough to feel secure about retirement. Eliminating debt actually brings a positive return that can be applied toward growing your retirement savings. It takes a little work and planning but you can eliminate your debt and create a secure retirement. Most folks I work with find at least $300 per month they can redirect and comfortably put toward saving for their retirement.
Want to see how this could work for you? First, take an honest look at your spending. Spending is emotional. Don’t believe me? Track your spending for one month. Write down every penny you spend and look at it at the end of the month. Categorize each item as either a necessary living expense or luxury/play item. I did this myself and it was quite an eye opener because many of my expenses ended up in the luxury category! Ouch. BTW, necessary living expenses are the things that keep you from sleeping outside, cooking over an open fire in the back yard and showering at a truck stop; and the difference between your car payment and what it costs to carpool or ride the bus to work counts as a luxury. If you are honest about this exercise, I think you will see that spending is mostly emotional.
Call 407-367-8845 or email NinaAvery@TheSafeMoneyPro.com for a free evaluation and Safe Money blueprint and to learn how you can crush your debt and create a secure retirement.
About Nina K Avery, CFP ® and Avery Safe Money Solutions:
Restoring confidence with Safe Money Solutions to help everyone create secure retirement incomes they can count on for the rest of their lives. Nina K Avery, Certified Financial Planner ™professional, is gaining recognition in and around central Florida for being a Qualified Safe Money Advisor, Financial Literacy Coach & Guaranteed Retirement Income Expert. With all of the economic turmoil in the markets, the country and around the world, it’s more important than ever to understand how to keep your wealth safe and secure…but also growing.
Nina’s mission is first to educate and restore confidence. Using Safe Money Solutions, she then helps her clients create GUARANTEED retirement incomes for life. She also helps her clients avoid losing money and instead build wealth SAFELY and SECURELY. Regardless of your current financial situation, Nina can help you get on the Path to Safe Money and sleep well at night.
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