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The Rule of 72. There’s another way to quickly estimate the power of compounding. The Rule of 72 is a shortcut for estimating the number of years it’ll take to double your money at a given compounding rate. All you have to do is divide the rate into 72. For example, if the rate is 7%, divide 72 by 7 which equals to about 10. That means at a compounding rate of 7%, it’ll take about 10 years to double your money. Reflect on Learning: Let’s practice using the Rule of 72. How long would it take to double your money a compounding rate of 5%? (About 14 years) 8%? (9 years) 12? (6 years). V. How to Develop a Savings Habit Everyone is different. They earn different salaries, have different monthly expenses and financial goals. But almost everyone is capable of saving some amount of money each month and everyone is capable of developing a savings habit. Here are some things all earners can do to become lifelong savers: Start early. Rule Number One for becoming a successful saver is to start as early as possible. Compounding is time-sensitive. The sooner you start saving with compound interest, the sooner your savings will grow into a meaningful amount you can use to buy a house, start a business, or achieve any of your financial goals. Pay yourself first. The easiest way to save money it is to make sure you don’t get a chance to spend it. As soon as your paycheck hits the bank, divert a portion of it to your savings account . Don’t give spender- you a chance to convince sensible-saver-you that a weekend in Vegas is more important than your savings — or that you’ll “make it up next month.” Out of sight is out of mind. Put your money in your account and forget it. Automate Your Savings. Use your checking account’s automatic transfer function to make sure your savings account is automatically funded when you deposit your paycheck. Also, many employers offer an automated savings plan to help employees save. Automating your savings makes it easier than having to manually transfer the funds yourself. The more you remove your personal discretion from the savings equation, the better and more consistent the savings process goes. When the money is whisked away into savings every month, you get used to not having it. Automation makes saving effortless. Enroll in a Round Up Program. A Round Up app is a mobile micro-investing tool that rounds up your debit card purchases to the nearest dollar, takes the difference from your checking account and invests it for you . These are relatively new and painless ways to start investing and building wealth. Here’s how they work: Assume you made four purchases today on your debit card: $4.45, $6.21, $10.11 and $8.77. By rounding those purchases up to the nearest dollar and deducting the difference, you’d have $2.46 to invest. That doesn’t seen like much, but invest that amount every day for 10 years at a compounding rate of 6%, and you’d have over $12,000 without break’n a sweat! Acorns (acorns.com) is a round up app that invests your money for you. Bank of America’s Keep the Change program deposits the rounded up funds into a savings account as does Digit (digit.co) . Check with your bank to see if it has a round up program. Rule of 72 Years to double your money through compounding: 72 / Interest Rate PRODUCT PREVIEW
Chapter 8 | Super-Size Your Savings 140
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