Hi friends. It’s Debra L Morrison, your Chief Navigational Guide at Women Navigating Finances.
I have had a lot of people say to me lately, gosh, I actually have a stash of money here, during the COVID pandemic that I didn’t spend on travel, entertainment and restaurants. And then some of those same people have gotten a stimulus check that said, I got the check, but I really didn’t need it.
I’m here to say, as your Coach, let’s not have that just sift through our fingers and not know where it went. Poof, it’s gone. No, let’s be intentional.
I’m your Coach, let’s have a plan about how to handle these lump sums. It might be a tax income tax refund, same thing. I’m always an advocate of saving systematically. And I don’t want you to detract from that. These would be in addition to any amounts that you’re saving systematically.
The Rule of 72
I want to share with you the Rule of 72, it’s kind of fun. 72 is just this magical number; you divide 72 by the total return you’re going to get on your investment, and the quotient, or the answer, is the number of years for your money to double.
So, let’s just take $1,400. Some of those stimulus checks were for just that. $1,400 invested at 8% total return will become $2,800, exactly double, in nine years.
How do we do it? 72 divided by 8% total return is 9 years our money will double. Now you say, well, where can you get 8%?
This is extra money. So, you want to just put this right into stocks, into the most high growth, potential investment, and they will probably end up financing a lovely vacation or something else that’s on your bucket list, five to ten years down the road.
You see if you just save $50 a week and I’ll just round it to $200 a month to keep the math simple again, let’s use an 8% total return, which I think you can get in stocks over time. After only five years, you’ll have $14,000 just shy of $14,800. $14,800 is almost $15,000!
If you just tuck away 50 bucks a week, or basically not even 50 bucks a week, because there’s four and a half weeks in each month, typically 200 bucks a month into an investment whose total return is on average 8%, and you’ll have just shy of $15,000.
You see some of these numbers really even surprise me and I’m in the money business, right? I managed money for 42 years. I am not doing that anymore, but as your financial coach, I am going to suggest that compounding is your best friend in the world, and it will work for you.
All you have to do is start putting money away in systematic withdrawals, basically from your checking account into an investment account. And then when those lump sums happen, pop those on top. And you’re going to be ecstatic with the results. We have to keep our hands off of it. Remember those were extra. Didn’t expect it…windfalls and let that thing roll.
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Until next time stay empowered and be healthy!