The Savings Snowball

Thought for the day: If what you did was so great it will stand on its own merit. There’s no need for you to talk about it.

I hope you all had a nice, long holiday weekend. If you did not get yesterday off for Presidents Day (formerly known as Lincoln's birthday) then I hope you had a wonderful Valentine's Day. Saturday morning we actually had snow on the ground in Myrtle Beach! Look for pictures coming soon to www.jasonandkarenparchert.blogspot.com .
I built a snowman at six in the morning. By ten he was three clumps of melting snow. Now might be a good time to use the snowball analogy to talk about money. It might be another twenty years before we have more measurable snow here. The phrase most used regarding snow when it comes to your money is the "debt snowball." If you have ever rolled a snowball to make a snowman you know how the ball just grows bigger and bigger without any effort. It just collects and all sticks together. Just like the snowball, if not nipped in the bud, debt will grow and grow until it's out of your control- interest on top of interest on top of fees...

Today I want to coin a new phrase and look at "the savings snowball." It's the same theory, just in reverse. We'll look at eliminating debt another time. For the moment assume you have no debt. When you begin to put a little bit of money away each month into an account that is drawing interest you start a snowball effect that will continue to grow your savings as long as you want.

Say you put $100 into a savings account each month. Imagine (this is only an example, not currently realistic) you have a savings account that draws 4% and is compounded monthly. At the end of one year you would have $1,226.32. In the last month you made $4.07 in interest. It doesn't seem like much but you can see the snowball effect happening. In the first month you only made 33 cents in interest. You see how the amount of the monthly interest has grown to twelve times what it was at the beginning. And so has your contribution, I know. Follow me. The second year your interest earned will be $76.28. After three years you have $3,830.88 saved up. If you stop contributing there, left alone for eighteen years at the same interest rate that $3,830.88 will become $7,661.76. Keep making the $100 monthly contributions and in eighteen years the account balance will be around $32,500. Your monthly interest yield will be over $100 at that point.

But eighteen years is a long time from now! Well, what if you had started eighteen years ago? But there are no savings accounts with 4% interest. Okay, start with a $1,000 cd. You won't be able to touch the money for 6-14 months and you won't be able to contribute each month. Still make monthly contributions to your savings and add that to your cd at renewal.

If you are a little more daring now is the perfect time to invest in some stocks. If you have time to wait for ROI (return on investment) a good solid mutual fund is always a good bet. Look into a Roth IRA. A fair long term investment could bring you an average of 12% annually. At that rate your money will double every six years. So, if your initial investment is $10,000.00, in eighteen years you will have $80,000.00. Even at a 6% return your money will double in twelve years.

It's the snowball effect. Let it work for you as opposed to against you. Eliminate the debt and start the ball rolling toward a secure future!

Savings tip of the day: Store brands. They are the exact same thing as the name brand foods you buy in most cases. Don't believe me? Look at the labels and compare.