Basic Finance and Investing

Have you reached that point in your life where you’re just tired of working and wish you could retire? Have you done the calculations and realized that you will most likely need to work until you pass away? Anyone? Maybe you’re stuck because you didn’t know how to save or invest your money because no one taught you how. Here’s what Papa says about it: Saving and investing is not hard, but it is a tough practice to start and maintain. However, you can make the savings process easier once you understand a few key concepts.

I started my professional career when I hit 20 and was lucky enough to be able to invest in a company-matched 401K. However, I wish every day that someone would have spoken into my life about the importance of an easily accessible savings that I could pull from before I retire.

With the understanding that I am not a financial guru, or certified to give guidance, here are two financial topics that I wish I knew when I was 20 years old. Beyond this point, I’m preaching to myself. Feel free to be a fly on the wall and glean any information for yourself.

• The Rule of 72
• Have an Investment Account

For love of all things Holy, please – if you don’t do either of these practices, teach them to your kids! I have been teaching my 18 year old about these practices and he’s off to a good start – better than most adults I know. I used to think that the world of finance and stocks and bonds was scary – and that was because I didn’t understand it. Let’s start eating this elephant one little bite at a time though, shall we?

The Rule of 72

I’ll go out on a limb and say that the majority of you out there have no idea what the rule of 72 is all about. In a nutshell, it’s all about how many years it will take to double your money based on a rate of return. The basic formula is this:

Number of Years to Double = 72 / Interest Rate

Now bear with me. Let’s say you have $5,000 invested in a mutual fund with 12% rate of return. It’s a good idea to have an understand of how that money is going to grow. Your formula would look like this:

Number of Years to Double = 72 / 12 = 6 Years

So in 6 years, with no additional input of money from you, your $5,000 would turn into $10,000 after 6 years with a 12% rate of return. With me so far?

Let’s see how long it would take to double your money in a Money Market savings account. In April of 2022, the average rate of return on a Money Market account according to bankrate.com comes in at about 0.5%. Here’s how long it would take for your $5,000 to double if you let it sit in the bank:

Number of Years to Double = 72 / 0.5 = 144 Years

144 years!!! I do not have time to wait 144 years for my $5,000 to double. Are you feeling upset yet? I was so angry that it took me until my 40’s to know about this simple equation. I wanted to yell and scream at everyone in my life and blame them for not telling me about this – but that’s when I discovered they didn’t know about the rule of 72 either. To this day many of those people still advise to put your money in a bank savings account or in coffee cans buried in your back yard.

Have an Investment Account

This idea scared me when I was younger. I thought investors were out to steal my money and go buy another yacht or something. Another wish I have is that someone would have told me to put away just a bit of money every month with an investment house. Here is how it could have played out. If I invested $100 a month every month for 10 years, and I made a meager 6% return rate, then after 10 years I would have put in $12,000 and made an additional $4,327.

By the way, you can do all these calculations yourself as well. I like to use the online calculator at: https://www.calculator.net/investment-calculator.html

But how do you invest? Here are a few super easy options. Reach out to a Primerica agent, or go to a Schwab office, or do what I do now and use Betterment. Whatever method you choose, go for a 85/15 ratio of stocks/bonds, and keep throwing every extra penny you can spare every month and watch that balance grow.

I know that if I would have started my investment account when I was 20 that I would be retired right now, but I didn’t have anyone talk to me about investing. I want to break that cycle for you today. Start investing a portion of your money, and show your kids how easy it is. Maybe you’re already investing – what (legal and ethical) tips and tricks do you have?