Grow with the economy and beat inflation
What you guys should really understand is that money is an ever-declining value. You must always remember that you are working against time and money.
Now, you must make sure that your investments earn more than the inflation rate. It is not enough to start saving. You must also consider where you are putting your money. If you leave you money on a savings account, or lying on you pockets, you lose the chance to earn income and your cash also loses it's value. Double trouble right? So, put your money in an investment that should always generate an income that is higher than the inflation rate. This is how you can maximize the effect of compound interest.
Estimate your desired Net Worth
One way to plan for your financial future, given the reality of inflation is to make projections of how much your net worth should be by the time you retire. Let us say you are about 20 years of age. You are earning $130,000 annually and you want to maintain this purchasing power when you retire at the age of 65.
To be able to retire with the same purchasing power, you should know the equivalent of your present income at age 65. This amount is what your net worth should be earning at the time. Therefore, you should aim to build your wealth to this amount before retirement.
At 5% inflation rate, the equivalent of your present annual earnings of $130,000 is $1,168,050 when you are 65 years of age. At an earning rate of 10% per year, your Earning Assest or investments should be $11,680,500! This means that by the time you retire, you should have $11,680,500 worth of investments to live as you are living now! And if you start at 20 years of age, you have 45 years to achieve it!
Here is a tip, if you start saving at 20 you only need to save 11% of your income annually to maintain how you live today. This amount increases to 15% when you reach 30 and 22% when you reach 40! Now how can you save 22% of your income if you have children and are educating them in high school or college? Well, I have some healthy advice for you. The earlier you start saving, the more peaceful your life would be without worrying about retirement. Remember that delaying savings or cheating it is like "planning" for a diminished standard of living when you retire!
Whew, done with the 5th article.. I'm gonna be writing the 6th one soon so keep in touch here at compound savings interest!
Now, you must make sure that your investments earn more than the inflation rate. It is not enough to start saving. You must also consider where you are putting your money. If you leave you money on a savings account, or lying on you pockets, you lose the chance to earn income and your cash also loses it's value. Double trouble right? So, put your money in an investment that should always generate an income that is higher than the inflation rate. This is how you can maximize the effect of compound interest.
Estimate your desired Net Worth
One way to plan for your financial future, given the reality of inflation is to make projections of how much your net worth should be by the time you retire. Let us say you are about 20 years of age. You are earning $130,000 annually and you want to maintain this purchasing power when you retire at the age of 65.
To be able to retire with the same purchasing power, you should know the equivalent of your present income at age 65. This amount is what your net worth should be earning at the time. Therefore, you should aim to build your wealth to this amount before retirement.
At 5% inflation rate, the equivalent of your present annual earnings of $130,000 is $1,168,050 when you are 65 years of age. At an earning rate of 10% per year, your Earning Assest or investments should be $11,680,500! This means that by the time you retire, you should have $11,680,500 worth of investments to live as you are living now! And if you start at 20 years of age, you have 45 years to achieve it!
Here is a tip, if you start saving at 20 you only need to save 11% of your income annually to maintain how you live today. This amount increases to 15% when you reach 30 and 22% when you reach 40! Now how can you save 22% of your income if you have children and are educating them in high school or college? Well, I have some healthy advice for you. The earlier you start saving, the more peaceful your life would be without worrying about retirement. Remember that delaying savings or cheating it is like "planning" for a diminished standard of living when you retire!
Whew, done with the 5th article.. I'm gonna be writing the 6th one soon so keep in touch here at compound savings interest!
Posts
One can be financially secure just following the easy steps you have outlined.
ReplyDeleteExcellent!
Ed