The number one reason for divorce, domestic abuse, stress related disease and male suicide all have one thing in common–money.
As an engineering student at SMU, I took classes in things like Calculus, Scientific Computing, and Engineering Economic Analysis. I learned how to code in different programming languages while building an autonomous robot that picks up ping pong balls and shoots them in a basket.
But despite my love of numbers, I realized one thing. I had never taken a course in personal finance. In fact most people never have, which is why according to CNN Money, about 8 out of 10 Americans live paycheck to paycheck.
Now, as a Personal Financial Advisor, I know how the money game works. I’m going to reveal to you the secrets that millionaires know that most people don’t. YOU can WIN with your money!
1. The Rule of 72
Albert Einstein once said, “The most powerful force in the universe is compound interest.” The Rule of 72 shows how fast your money doubles. This can work for you (savings and investments) or against you (credit cards, student loans, etc.)
All you do is take the interest rate and divide it by 72. The result is how many years it takes for that dollar value to double. For example, if you had an investment or loan at 3%: 72/3 = 24 years to double. This picture shows you the HUGE difference that a 3, 6, and 12 percent rate of return can make with a $10,000 balance.
So be careful next time you get a credit card or loan with a 15-20% interest rate. Things can escalate VERY quickly!
2. Debt Stacking/Snowball
This concept helps families get out of debt much quicker without spending more money. It has been around for awhile but it is very popular now because Dave Ramsey uses it.
Oftentimes, when someone has a debt and they pay it off, they think “Great. Well that’s $200-300 a month I don’t have to spend anymore. I’ll spend it on shoes, food, clothes, etc.”
Don’t do this!
Instead, use that same amount of money (in this case, $200-300) and apply that to your next smallest debt regardless of interest rate. Before you know it, your monthly payments will create more momentum and knock your debts out in a fraction of the time.
3. Expert Recommendations for Personal Finance
Oftentimes, people don’t know how much of their income they need to save for emergencies, unexpected events and retirement. Here are some helpful tips:
– You need about $1,500-2000 for an emergency fund. This is for when the transmission goes out, pipes bust in the house, etc.
– You also need 3-6 months of bill money saved just in case of a lay off, job change, moving to a different city, etc.
– For retirement, if you want to retire middle class, save and invest 10% of your income. If you want to retire wealthy, save and invest 15%. If you want to retire early, save and invest 20%.
– Most people spend and save what’s left over. Wealthy people save first and spend what’s left over.
Hope this information is helpful. You can win at the money game because now you know the rules!