How Interest Can Maximize Your Savings Plan

Remember the old adage a penny saved is a penny earned? Well, believe it or not, it's true. And fortunately, it applies to a lot more than pennies.

Earlier this week, I said that the biggest obstacle to starting a savings plan is getting over your excuses - one of those excuses being that you don't want to have to go without. But that's not an entirely valid excuse anyway. See, a savings plan isn't all about giving stuff up and being frugal - it's about making money. You know how your credit card company charges you an additional rate on the purchases you make, so you continue paying even after you leave the store? Well, this is just the opposite - if you play your cards right, the interest on your money winds up in your pocket.

Of course, it doesn't make sense to earn interest on your savings when you're forking over even more interest to creditors - so, as we discussed on Thursday, it's a smart idea to first put your savings towards eliminating your debt. Then it's time to earn money your way.

First, you'll need to make sure you're earning more than 3%, or the typical rate of inflation - that pesky rate at which money decreases in worth over time. Theoretically, if you stashed 100 bucks in your sock drawer today and took it out in 30 years, it would only be valued at about $40 - less than half its original worth - thanks to inflation. But let's say you invested that hundred-dollar bill in such a way that you earned 10% interest (rather than the 0% returns courtesy of your dresser drawer). You'd end up with $750 at the end of 30 years - thanks to compounding.

In the first year, of course, you'd get 7% interest - that's 10% minus the 3% inflation - bringing your total to $107. Next year, you'd earn 7% on top of the $107, etc, etc. So what would happen if you invested a little more, say 10% of a $40,000 annual income? Now we're talking $30,500! The more you save, the more you earn.

Look at it as motivation, whether you're saving up for that car, house, vacation, comfortable retirement or financial security - or, eventually, all of the above. Your hard work will pay off - if you save.

That said, if you just can't stop struggling with bills, creditors and lenders long enough to get a savings plan off the ground, debt could be standing in the way. And bankruptcy could be your best bet for eliminating it. Find out if a bankruptcy plan could free up your finances when you sign up for a free debt analysis with an Atlanta bankruptcy attorney - or a free community financial workshop in Atlanta. And learn how to stop paying interest - and start earning it.

Post a Comment

Your email is never published nor shared. Required fields are marked *