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Nine Secrets of Financial Peace of Mind

January 29th, 2013 · No Comments

SECRET # 1. Start worrying (and saving) when you are young. Time is your friend.

If you put aside $100 a month starting on your 21st birthday, and invest it in a tax-free account that pays 5% compounded interest (yes, they do exist), on your 31st birthday you will have $15,792.

If you stop putting any more money in on your 31st birthday, on your 51st birthday you will have $43,180, which is enough to purchase outright the mid-life crisis car of your dreams.

In other words, $100 a month for 10 years (which is a total of $12,000), with interest, becomes $43,180 after 30 years.  That is more than triple.

Let’s say you are reading this, but you are now 51 or 61 years old. You’re still young!!!! In 30 years, you’ll be 81 or 91.  You still have time to make this work for you. (If you are much older than 61 now, this section applies to your children or grandchildren.)

What you are doing is accessing the power of compounding. Invest a small amount today, and it will grow a little in one year. The next year it grows the same amount, but the earnings from the first year grow as well. In the third year, your original money still grows the same amount, but now the earnings from 2 years grow as well.

This raises 2 questions:

First, where are you going to find an extra $100 a month, which is $3.33 a day, roughly?

Here’s a list of things that you can cut out of your daily routine to save $3.33 a day:

  • A cup of trendy “coffee shop brand” coffee. (Sorry—my lawyers won’t let me mention brand names, like Barstuck’s. And this does not work if you live in Chesnee, S.C., where the Bantam Diner charges 25 cents for a cup of coffee. However, the Bantam Diner does not fit the description “trendy,” and you don’t live in Chesnee, S.C.)
  • The print edition of the New York Times ($2.00), and a doughnut (Krispy Creme or Dunkin’ Donuts, which you should not visit anyhow, unless you have the willpower to just get the coffee.)
  • Any sweetened beverage, or two bottles of water, from a convenience store.
  • One valet parking, every other day.
  • One drink at a bar, every third day.
  • Or you can start clipping coupons in the local Sunday paper. (If you start doing this, then you can continue to indulge in items 1 thru 5 above most days. You should be able to net $10-$15 off items you would already purchase via Sunday coupons.)
  • Borrow, scrape, or scrounge cash wherever you can.

My point is, you are not talking a major lifestyle change to save $3.33 a day, which becomes $43,180, which is the price of a nice car, or the down payment on a vacation home. So you can either drink a cup of expensive coffee a day for the next 10 years, or you can drive a nice car or have a vacation home.  It’s your choice.

Now let’s say you got into the habit of putting $100 a month aside, starting at age 21. After 10 years, you are 31 years old, and you have probably gotten used to not having the designer coffee. If you keep putting away the $3.33, by age 51, with compounding interest, you would have $84,648. The $100 a month for the additional 20 years would give you an extra $41,468. So now you’ve never had the designer coffee, but you own a motorboat, free and clear.

Let’s say you don’t read this until you are 31 years old, and you still want the motorboat. $100 a month won’t do it. Now it will take a bit more than $202 a month for the next 20 years. In other words, if you indulge yourself at ages 21 to 30, you can still reach your goals, you’ll just have to put more than twice as much aside later. That is harder to do.

–Excerpted from: “The Financial Fitness Handbook:  Making Your Money Outlast You (15 Checklists for Achieving Peace of Mind About Your Financial Future),” by Louis Berlin, C.E.O., Berlin Consulting Group. Download free of charge at

www.InsuranceForEnchancedLiving.com.

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