Friday, June 26, 2015

What Oscar Wilde Can Teach Us About Saving and Investing

Comparing yourself to other people can create a lot of anxiety. These comparisons can apply to any area of live: Career, marriage, hobbies, fitness. This process can become a vicious cycle: We compare ourselves to other people, we don’t think we measure up- and then we stop trying altogether.

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The author and playwright Oscar Wilde has a great quote: “Be yourself; everyone else is already taken.” The point here is to more forward based on who you are and what you can reasonably accomplish.

This view should apply to savings and investing.

Simply starting

Many people don’t feel that the amount they save for investing is enough. As a result, they don’t save at all. Any amount is better than nothing. And if you’re wondering where you can find dollars to save, consider your trips to Starbucks.

OK, so I didn’t see prices for items on the Starbuck website. However, #HackTheMenu (great name) does provide prices. A Grande Café Latte is $3.65, and the same size regular Coffee is $1.95.

Let’s say that you run by Starbucks for that Café Latte 5 days a week. To save money, you decide to by a coffee four days a week, rather than the Latte. That saves you ($1.70 *4 days = $6.80 a week). In a 4-week month, that’s $27.20. The figure adds to up $326.40 a year.

The magic of compounding

OK, so you’re not convinced that $326 is all that meaningful. Well, what if you invest the money at a 5% return for 10 years? Let’s further assume that you reinvest your earnings each year.

By reinvesting earnings, you take advantage of the magic of compounding. Compounding means the ability to earn interest on interest. Say, for example, that you invest $100 at 5% interest. At the end of year one, you earn $5. To use compounding, you reinvest the $5 at the same interest rate. In year two, you earn 5% on $105, or $5.25. You earned an extra 25 cents by compounding.

Tools on the web

You can find lots of great tools on the web to calculate compounded interest. I like this one from Bankrate. If you plug in $326 compounding at 5% for 10 years, the total is $531. That’s earnings of $205, or a nearly 63% growth rate over 10 years. Not bad….

How long would it take your money to double in value? To find that answer, you can apply the Rule of 72. Simply take your rate of return (5%), and use that number to divide into 72. In other words (72 / 5 = 14.4). In 14.4 years, your money would double.

Start investing- at whatever pace you can. Be yourself. Any amount of investing will pay off for you over the long haul. You’ll feel good about what you’ve accomplished.

What strategies have you used to start saving and investing? I’d love to hear from you.

Ken Boyd
St. Louis Test Preparation
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

Image: Therrry Ehrmann, Oscar Wilde painter portrait_DDc0271 (CC By 2.0)