Would you believe $465.84? Or more?
If you buy a cup of coffee every day for $1.00 (an awfully good price for a decent cup of coffee, nowadays),
that adds up to $365.00 a year. If you saved that $365.00 for just one year, and put it into a savings account or
investment that earns 5% a year, it would grow to $465.84 by the end of 5 years, and by the end of 30 years,
to $1,577.50.
That's the power of "compounding". With compound interest, you earn interest on the money you save and on the
interest that money earns. Over time, even a small amount saved can add up to big money.
If you are willing to watch what you spend and look for little ways to save on a regular schedule, you can make money
grow. You just did it with one cup of coffee. If a small cup of coffee can make such a huge difference, start
looking at how you could make your money grow if you decided to spend less on other things and save those extra
dollars. If you buy on impulse, make a rule that you'll always wait 24 hours to buy anything. You may lose your desire to buy
it after a day. And try emptying your pockets and wallet of spare change at the end of each day. You'll be surprised how
quickly those nickels and dimes add up!
Speaking of things adding up, there is no investment strategy anywhere that pays off as well as, or with less risk than,
merely paying off all high interest debt you may have. Many people have wallets filled with credit cards, some
of which they've "maxed out" (meaning they've spent up to their credit limit). Credit cards can make it seem easy to
buy expensive things when you don't have the cash in your pocket or in the bank. But credit cards aren't free money.
Most credit cards charge high interest rates as much as 18 percent or more if you don't pay off your balance in
full each month. If you owe money on your credit cards, the wisest thing you can do is pay off the balance in full as
quickly as possible. Virtually no investment will give you the high returns you'll need to keep pace with an 18 percent
interest charge. That's why you're better off eliminating all credit card debt before investing savings.
Once you've paid off your credit cards, you can budget your money and begin to save and invest. Here are some tips for
avoiding credit card debt:
. Put Away the Plastic
Don't use a credit card unless your debt is at a
manageable level and you know you'll have the
money to pay the bill when it arrives.
. Know What You Owe
It's easy to forget how much you've charged on your
credit card. Every time you use a credit card, write
down how much you have spent and figure out how
much you'll have to pay that month. If you know you
won't be able to pay your balance in full, try to figure
out how much you can pay each month and how
long it'll take to pay the balance in full.
. Pay Off the Card with the Highest Rate
If you've got unpaid balances on several credit cards,
you should first pay down the card that charges the
highest rate. Pay as much as you can toward that debt
each month until your balance is once again zero,
while still paying the minimum on your other cards.
The same advice goes for any other high interest debt (about
8% or above) which does not offer the tax advantages of, for
example, a mortgage.
Now, once you have paid off those credit cards and begun
to set aside some money to save and invest, what are your
choices?