In the first two parts of the deeper dive the positive side of the rule was explored. Now I’m going to do a quick look at the dark side of the rule of 72…
In part one the example of a 14 year old who invests $5000 one time of the money earned while babysitting showed the power of compounding over a long period of time. Of course as effective as it to invest one time for a long period of time is the most effective way to make use of this is to do the same process multiple times .
Parcheesi with 72 Spaces
Previously I went over briefly the Rule of 72. After going the rule over with a few people in the last couple of weeks it seems the power of the tool is lost until it is applied in a personal finance context. The math behind the rule is simple. The number of 72 is divided by the interest rate of an investment equals the time in years the money will double.
The Top 10 Cutest Kittens on Youtube is a video that last 9 minutes and 23 seconds. Although many people enjoy these videos I think there are other ways to spend 9 minutes ans 23 seconds. In the same amount of time I’m going to brainstorm, write this blog and suggest 10 things you can do instead of watch cute kitten videos.
The most amazing thing is the number of viewers that watch this. I wonder if all those people who watched the whole video actually thought of anything else they could be doing. (Just over seven million!)
Ten Things (that can be done in the same amount of time)
- Drink a couple of glasses of water ; the body is made mostly of water and more water is good for you.
- Start a retirement plan
- Plant some seeds of some plant; more oxygen in the world can’t be bad.
- Go for a short walk; it is healthy and it clears your mind
- Call someone you haven’t talked to in a while just to say hi.
- Do a quick check of your bills (this helps keep you from getting late fees; you can even set up a calendar reminder to do it monthly)
- Read a chapter of a book you’ve been wanting to read
- Take a power nap – sometimes a quick charge of your batteries keeps you going
- Change your light bulbs to LED (see the impact – bottom of the post)
- Write a blog post about things you could do in 9 minutes and 23 seconds (or even better create your own list!)
Have a nice day and do something in 9:23….
Can you work longer hours for the same money? Would you like to give yourself a pay cut? Can you sign up to become an indentured servant? Would you like to be an investor in inferior products? All these things can be done but, it takes planning and goal setting. This post is not for everyone, not everyone has what it takes to be perpetually poor. If this is your goal keep reading….
I was driving to work today and it was after a storm last night. The one thing I noticed was the sky looked beautiful and the vegetation looked greener. This got me thinking that this is a lot like people’s finances.
When a storm hits there are usually signs something is going to happen. The sky gets dark, the leaves of the trees turn up, the wind picks up, etc. Often we see signs in our financial life. It may be a buyout of a company you are working for, a car that is ready to break down, a pending divorce, a child going to college, etc. Noticing the signs helps set up the appropriate action needed.
The morning after a storm may have done some damage but, it is nature’s way to restart and reset. When a financial setback happens this also gives an opportunity to restart and reset our finances. Planning and taking action before a storm hits is key to how good the restart and reset is.
If you have shudders on your house (the ones that work and not for show) and batten down your house before a storm the better off your house will be. Likewise when you see a financial storm brewing make sure you have the financial shudders that work. One example would be to have a paid off older car rather than a newer with payment car. If you lose income or have increased expenses you are more able to take the hit and move forward with less money going out. Also a paid for car can’t be repossessed, so you’ve eliminated that risk.
In the aftermath of a storm there are opportunities that pop up that you may not have had before the storm. A tree that gets knocked down may provide the space in the yard for a garden. If the tree falls on the house; the insurance money may give you the ability to improve your house. A job loss may provide the time to look for a job better than the one lost, one that may have not been found had you been at work.
Storms are going to happen, it is just a fact of life. Be prepared and move forward after the storm with new momentum.
Buying a house is exciting. Most people get mortgage to purchase a house. For most people buying a house is the most expensive purchase in their lives. Most people don’t understand what amortization is. This begs to ask the question “If the biggest factor of the biggest expense is not understood, how can you reduce that expense?”
If you play a board game you need to know the rules to be able to play and you need to know what is required to win before you can develop a strategy. When purchasing a home via financing wouldn’t it be in the in your best interest to understand the rules and apply it towards your goal.