Procrastination
the
earlier you can start saving toward your goal, the more often you save toward
your goal, and the longer you
can keep your money invested, the easier it is to reach your financial goals.
Take
advantage of the compound interest (exponential returns). Example: $100
earning 10% = 110 at the end of
year one, 121 @ the end of year 2, 133.10 @ end of year 3. Each year the
investment earns the same 10%,
but the principal is higher. Albert Einstein is credited (whether true or not)
with saying that
compound history is the “greatest discovery of the 20th century.”
Rule of 72 – an easy formula to determine the investment return you need
to double your money in a certain
number of years. If you want to double your money in six years, you need a 12%
compound annual return (72 / 6 =
12)
Spending habits – Aside from daily spending habits, pay attention to debt
to equity ratios. i.e. mortgage
payments should not exceed 28% of gross income. Total debts should not exceed 36% of gross income.
Inflation – long-term average 3.2%
Taxes – interest from CDs is taxed. Short-term trading is taxed at a
higher rate than Long-term
investments.
The Media – be careful what you read and hear on the media. Financial
Media shows are telling you
what the sentiment is on the trading floor. There is always a sense of
urgency. Too much focus on
short-term volatility. “Best stocks to buy now!” “What should you do with your money now?”