Monthly Investment Message March 05

Investing For Your Future

Monthly IFYF Investment Message

March 2005

Back to Archived Monthly Investing Messages.

The number "10" is a powerful tool. It is easy to multiply, divide, and remember; small enough not to discourage people from taking action; and large enough to make an impact over time. "10" also shows up repeatedly in expert recommendations to improve health and wealth. Whether it's shedding 10 pounds, exercising in 10-minute increments, saving 10% of one's gross income, reducing debt by $10 a day, or earning a 10% long-term investment return, "10" and derivatives of 10 (e.g., 1 and 100) are strong motivators if the magnitude of their impact is fully appreciated.

Below are some financial tips to consider that are based on the number 10:

• "Pay yourself first" by saving at least 10% of your gross income. If you earn $50,000, you'd save just under $100 per week, preferably through payroll deduction. If you start saving $100 a week in your 20s, with an 8% return, you'll have over $1.5 million in 40 years to provide financial security in later life.

• Pay off the average $8,000 American credit card balance at 16% interest in three years by applying an additional $10 a day ($300 monthly) toward the outstanding balance. According to Pay It Down! From Debt to Wealth on $10 a Day by Jean Chatsky, "finding" $10 a day by trimming household expenses can dig someone out of a credit card hole in three years instead of taking decades. Once the debt is repaid, she advises continued $10/day savings for another two years in a money market account to build an emergency fund of over $8,000. After that, the $10/day savings should be used to fund a tax-deferred account such as an IRA. If your IRA's performance matches the approximately 10% return of the Standard and Poor's (S&P) 500 stock market index since the 1920s (e.g., in an S&P 500 index fund), you'd have over $250,000 in 25 years from $10 in daily savings.

• If you don't have $10 a day to add to debt repayment, try adding just $1 a day ($30 monthly) to the minimum monthly payment due on credit cards. According to Slash Your Debt by Detweiler, Eisenson, & Castleman, paying $1 a day more than the minimum due on a $5,000, $10,000, and $15,000 balance on a 17% interest credit card will save $7,624, $12,615, and $16,168, respectively, in interest payments.

• Save $10 a month, or multiples thereof, using the table below as a guide. Find the intersection of the interest rate that you expect to earn and the number of years you will be saving. Adjust according to your savings plans; e.g., multiply the figure by 5 for $50 ($10 x 5) of savings.

Accumulations Possible By Saving $10 Per Month at Various Interest Rates and Time Periods

Source: How to Save $1,000 or More a Year, Rutgers Cooperative Extension Fact Sheet 539. Available at http://www.rcre.rutgers.edu/pubs.

• Save $1 a day, plus pocket change, in a can or a jar by reducing daily expenses by $1. You should be able to save about $50 a month or $600 a year. Increase the daily savings amount to $2 or $5, plus loose change, and you'll have around $1,000 and $3,000, respectively, saved.

• Invest a portion of long-term (i.e., financial goals that are 5 or more years in the future) investments in stocks and stock mutual funds to potentially earn returns that have averaged about 10% a year since the mid 1920s. Beware of the risk-reward relationship, however. When you are investing, there is a positive relationship between the amount of expected return and the risk of losing your money. Stocks have more risk than bonds and cash investments but have historically provided a higher return over time.

Browse related Articles by tag: