Random Picture Friday - NYC
February 25, 2011
standing on a street grate near 48th and Madison in Manhattan
| Posted in »
12 years ago
Cooper River Bridge Run 2011
February 24, 2011
Mel and I registered for the Cooper River Bridge 10K Run on April 2nd. Let's do it!
Amicalola Falls, Georgia
February 20, 2011
We hiked to the top of Amicalola Falls in Dawsonville, GA yesterday.
It's easy to see why this is one of Georgia’s most popular state parks. Amicalola, a Cherokee Indian word meaning “tumbling waters,” is an appropriate name for these 729-foot falls ~~ the tallest cascading waterfall east of the Mississippi River. An 8.5-mile approach trail leads from the park to Springer Mountain, the southern end of the famed 2,135-mile Appalachian Trail. However, numerous other trails are available for shorter journeys. Source
Taking a break at the top
1st and 15th Financial Corner - Feb 15, 2011
February 15, 2011
Click here for all editions of 1st and 15th Financial Corner.
Before I get into building net worth, I want to explain the time value of money and compound interest... both appropriate topics for tax season.
The time value of money means that any amount of money you receive now is more valuable than the same amount of money you receive later. Compound interest is the reason for this. It’s why you don’t want a big, fat income tax return every year… adjust your withholdings to get your money NOW.
Many people like to quote Albert Einstein as saying that the most powerful force in the universe is compound interest. He probably never said that, but the point is valid. Compound interest is a mighty force.
There are many simple ways to earn interest on money. Savings accounts and CDs are two of the most common interest-earners.
Let’s say you followed along with the previous editions of 1st and 15th Financial Corner, cut $5,000 from your yearly expenses and put that savings into a CD earning 5% per year. You don’t add anything to it and just let it sit there. In 30 years, that $5,000 will be worth $20,580, which is a lot more than the $0 it would have been worth if you had spent it.
How’d that happen?
COMPOUND INTEREST
At 5%, your $5,000 earned $250 the first year. Here’s where compounding kicks in. The second year, your $5,000 earns another 5%, but your $250 earns 5% too. What happens is your interest starts earning interest, then that interest starts earning interest, then that interest starts earning interest, and on and on and on.
So, your initial capital investment ($5,000) is constantly snowballing, adding more and more to itself every day. Imagine how much momentum you could create for your little nest egg if you regularly add more to it along with the interest it is accumulating.
Excel is great for calculating compound interest, but you can do it on a calculator, too. Just enter 5000 x 1.05 and hit enter or =. That gives your value after a year of 5% gains. Hit enter or = again, and that’s your 2nd year value, and so on.
Now, check this out. If you invest in something that will get you an 8% return instead of 5%, then after 30 years, your $5,000 will be worth $46,586!
Just by increasing your annual return by 3%, you get $26,000 more.
Investing in a stock/bond portfolio will reasonably get you 8% annually… possibly more, possibly less.
If you invest $20,000 initially, 5% gets you $82,000 after 30 years, and 8% gets you $186,000.
Warren Buffett tends to think in terms of the future value of money. For example, if you buy a $4 coffee drink at Starbucks, you’ll actually have $37 less when you retire because of that $4 you spent today. That $4 didn't get to compound and that coffee drink literally went down the toilet. Add the little things up, and it’ll blow your mind how much they are costing you over the long run.So, you can see the impact of compound interest and percentage returns.
If you think about it, this also demonstrates the importance of saving money NOW!!! The longer you wait to start building your nest egg, the less time you are giving compound interest to work its magic.
To illustrate this point, look at this chart.
See the line? It’s parabolic… it ain’t straight. Compound interest really kicks in exponentially the longer you give it to work. The exponential increase is what makes compound interest so powerful. So, don’t fall into the trap of thinking you can wait to start saving and catch up later in life.
The time value of money bites you in the butt every day that you wait.
She Had a West Coast Strut That Was as Sweet as Molasses
February 12, 2011
Thought of the day:
Never underestimate the impact of being too cool for school
Squatting a Set of 255
February 8, 2011
This is the song I was listening to during this set... hat tip to Will for making me download it.
Signing Day 2011
February 2, 2011
Clemson coaching staff's reaction to Tony Steward announcement
I've got to give Dabo Swinney this: The man can recruit.
Clemson wrapped up a top-10 class today. With the new WR talent and the new offensive system, I can't help but be excited about next season.
1st and 15th Financial Corner Feb 1, 2011
February 1, 2011Okay, so you’ve determined your cash flow and net worth. Let’s hope they were both positive. If not, then we’ll work through it.
Regardless of whether your cash flow is positive or negative, you want to increase it. Same goes for net worth. If your net worth is negative, it is not as urgent a problem as negative cash flow. You only have a very small chance of growing net worth if your cash flow is negative, so turning cash flow positive is paramount.
For a long time, I had a negative cash flow. My problem was that I knew it was negative, but I thought avoiding the truth was better than seeing it in black and white, so I didn’t track it. That only perpetuates the problem. It is much easier to get cash flow under control if you know exactly where the money is going and how much you’re losing.
There are two ways to increase cash flow:
• Increase your income
And/or
• Reduce your expenses
It is that simple.
Off topic, but it's the same concept: If you want to lose weight, you have to consume fewer calories than you burn. It's just a matter of simple physics, but back to our discussion...
I have not had a car payment for several years. I drive an 11-year-old car. It comes down to early retirement or a late model car, and that choice is a no-brainer to me.
If you are paying $300 a month for two cars, then you’re spending $7,200 per year for them. That’s $36,000 over just five years that is not in your net worth! Poof... gone!
If you are paying $300 a month for two cars, then you’re spending $7,200 per year for them. That’s $36,000 over just five years that is not in your net worth! Poof... gone!
If you keep your car when it is paid off and invest that money, you would not only have $36,000 to yourself, but you could earn interest, dividends, or capital gains on that money.
Conclusion
Comb through your expenses and determine which ones are worth it. Drop the ones that aren't.
Once you get your cash flow positive, you can begin or continue to build your net worth.
Conclusion
Comb through your expenses and determine which ones are worth it. Drop the ones that aren't.
Once you get your cash flow positive, you can begin or continue to build your net worth.
Previous editions
1st and 15th Financial Corner January 1, 20111st and 15th Financial Corner January 15, 2011
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