The Magic Of Compound Interest

Here's a topic we've addressed before. It is a topic worth repeating. I took the simple explanation directly from the U.S. Department of Labor, Employee Benefits Security Administration.

Compounding investment earnings is what can make even small investments become large investments given enough time.

How It Works – The money you save (either in a savings account, a mutual funds or in individual stocks) earns interest. Then you earn interest on the money you originally save, plus on the interest you've accumulated. As your savings grow, you earn interest on a bigger and bigger pool of money.

Start Saving Early - For every 10 years you delay before starting to save for retirement, you will need to save three times as much each month to catch up.

Starting at 20 - If you put $1,000 a year into an IRA every year from age 20 through age 30 (for 11 years) and stop - and the account earns seven percent annually - your savings will equal $168,514 at age 65.

Starting at age 30 - If you don't start until age 30, but save the same $1,000 amount annually but for 35 years straight at the same seven percent rate, you will have saved three times as much money but your account will grow to only $147,913 at age 65.

Where you might obtain a steady 7% return puzzles me, especially in this low interest rate environment but the point is clear even on a lesser scale:
- Start early!
- Save regularly or automatically!

The difference is significant if you wait. Even small amounts saved early have many more years to grow.

Be $ Smart - Start saving now! Any amount is better than none. Your future depends on it.

Hemorrhaging from Your Capillaries

Over the past 30 years I have given many presentations about money. As a way to describe massive losses of money from small expenditures I coined the phrase "hemorrhaging from your capillaries". Capillaries are tiny blood vessels and it is hard to imagine how you could bleed to death but it's the image I want to create of losing significant cash through passive, unconscious spending on seemingly insignificant items.

Folks meet with me wanting to save for a house down payment, college education or retirement BUT they are living paycheck to paycheck and cannot find those dollars to put towards their goals. To help, I suggest they practice "conscious spending". For one month to pay close attention to where their money goes.

Here are a few suggestion where you might find hidden savings:

- If you take $200 or $500 from your ATM can you account for how you spent that money? Keep the ATM receipt and record your spending on the back of it. Any surprises?

- How much do you spend on lunch out each week? Brown bag it once or twice. Leftovers usually taste better.

- Add up the cost of your daily Starbucks latte. Maybe go to Starbucks MWF and visit MacDonald's TTh.

- How many magazines come into your home? Do you make time to read them all? Cancel one.

- When you go out to dinner and the cute waitress or waiter suggests appetizers, specials, desserts do you succumb and run up a bill that surprises you? Try using cash instead of your credit card to limit how much you spend.

- Does your bank charge you a monthly fee for a checking account? Maybe you qualify for a simpler one with fewer components and no fee.

- Have you added up what you paid in credit card interest? Paying down those cards could free up hundreds of dollars.

I'm not suggesting you deprive yourself; I am recommending that you PAY ATTENTION. Before you can find those dollars to fund your dreams, you must become aware of how you spend your money to avoid hemorrhaging from your capillaries.

Be $ Smart - track your incidental spending to find money to save. Then take those savings and invest them!

Use Tax Season to Put Your Financial House in Order

My least favorite time of year has arrived - TAX season!
It takes days to gather all the 1099's, W-2's, etc. I take over the dining room table with papers spread over every inch. Fortunately, I also have a kitchen table where I eat my meals.

With everything out in the open, this presents a perfect opportunity to organize your finances.

Try to implement one of these suggestions:
1. Use a 3-ring binder to organize statements. Even if you receive statements online, it may be helpful to print the summary page for each financial institution. Use dividers to separate each. This helps you to compare monthly or quarterly values. Are you making money?

2. Create an annual Net Worth statement. List all the assets you own - house, condo, car, 401k, IRA, etc. and their current value. Add them up. List what you owe (liabilities) - car loan, student loan, mortgage, credit card balances, etc. Add them up. Subtract what you owe from what you own. That number is your Net Worth. Each year compare the bottom line. Are you growing your wealth?

3. Increase your savings amount. Pay yourself first.
Are you on track to buy that car or condo? Set up direct deposit from your checking account to your savings account.
For retirement, increase your contribution to your 401k/403b by 1%.

Be $ Smart - Use tax season to build your financial independence.

Local TV show - Money and Health

Recently I was invited to join my good friend and chiropractor, Dr. Louis Bisigoni on his TV show Healthy Horizons at White Plains Community Media.  Dr. Bisigoni and I discussed the many ways money affects your health - for good and for bad.

I thought you would appreciate viewing the topics we discussed:

http://wpcommunitymedia.org/#!mm-7255

Welcome to My Blog!

Hi!  My name is Eileen Hawe.  I’ve been working in financial services and personal finance for almost 30 years.  It’s an industry that’s rife with conflict of interest.  I witnessed it first hand and understand the need for basic, clear, unbiased information. 

Have you ever had to make an important decision, looked for help or direction and didn’t know whom to trust?  Or, while sitting across from a financial adviser heard that little voice in the back of your head wonder “what’s in it for him/her?”

I will answer your questions, even the “dumb” ones, clearly and simply.  I will guide you through the rough times, get you back on your feet and help you realize that personal finance is not rocket science. 

I love what I do.  I have a skill which I am happy to share with you.  It makes me feel good; we both benefit. 

Follow my blog where I will post important financial facts on a regular basis.

For example: are you familiar with The Rule of 72?

Take the interest rate you are earning on an investment (a CD earning 2%).

Divide that number into 72 to show the number of years it will take to double your money.  (72/2=36)  Thirty-six years. An investment with a higher return of 6% would double your money in 12 years.  (72/6=12)  Twelve years. Higher returns may have higher risk.

 Also, IRA Conversion:  did you know that this year might be a good time to convert your regular IRA (individual retirement account) to a Roth IRA? Many portfolios have lost money in the second half of 2011 so the taxes due on the conversion may be less.

If these tips have helped you, contact me to schedule a meeting and I will guide you to financial security.