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Imagine going to sleep each night and waking up in the morning to find a crisp, new, 100 dollar bill on your bed-stand. Multiple this by 365 days in the year and it will amount to $36,500. Multiple this by ten years and you will have $365,000.
Few of us are positioned today to make $100 each day using the formula I describe below, but by understanding the formula, applying it, and staying true to it your money will grow – slowly at first and then quickly accelerating.
A few notes: This is very basic information that we tend to forget about. We get so absorbed in the random nature of the stock market, the fleeting opportunity for a quick buck via the lottery, and reward-type credit cards, and free checking accounts that we forget about the simple math. I am intentionally leaving out compounding and taxes. If you need to pay more taxes because you are making more money it’s a good thing – you are doing your patriotic duty!
So, the secret?
Let me explain.
Let’s say I want to wake up each morning with a penny on my bed-stand. Assume for this discussion that I can earn 5% interest on my money (even though money markets and savings accounts are much lower right now). To wake up with a penny each morning I would need to earn $3.65 per year in interest. Apply the simple math (remember Ms Jones or Sister Ann Marie) as such:
$10 at 5% = 50 cents interest per year – too low
$100 at 5% = $5.00 interest per year – too high
$73 at 5% = $3.65 interest per year – my goal for a penny per day
Wow! $73.00 is needed to make a measly penny per day? That’s a lot of work!
Actually, it is not work. The work is earning the $73.00 and keeping away from the temptations long enough (hang on, my latte is ready) to put the money where it can work for you. Once you have the $73.00 in a 5% interest account it is doing the work for you. You won’t actually wake up with a shiny penny each morning unless you (or a loved one) places one there, but through the course of the year you will earn the $3.65 of interest. Oh yeah. Compound interest (good thing) and taxes (bad… er… good patriotic thing) improve the formula.
Wow (said sarcastically). Again. A penny a day does not motivate me. It makes me just feel worse.
So, let’s do some more math:
$730 at 5% = $36.50 interest per year – 10 cents per day
$7,300 at 5% = $365.00 interest per year – $1.00 per day
$73,000 at 5% = $3,650.00 interest per year – $10.00 per day – getting more interesting
$730,000 at 5% = $36,500.00 interest per year – $100.00 per day – our goal
Gee, I only need $729,990 more and I can make $100 per day in interest. Depressing, right?
Simple as this seems, if you can get your money to work for you it gradually changes from peanuts to something you can really get excited about! Just like watching an oak tree grow, it seems to take forever until years later when you look at it and realize how quickly it has grown.
So, start with $73.00 in a 5% (or the best you can find right now) interest account and earn your penny per day. Each time you double the amount you are saving you also double the amount of interest you receive. Which in turn makes your money grow even faster.
Get motivated by starting small and celebrating that penny you earned today without having to lift a finger, and increase your celebrating as your balance grows, and grows, and grows.
And soon the day will come when you wake up to find a fresh, crisp, new, 100 dollar bill next to your bed.