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August 2006 |
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 Saving Even Small Amounts Comes With Benefits At Debt Matters, we're always talking about how you don't have to wait for retirement to enjoy the benefits of saving. Then it dawned on us: Instead of just talking about it, why not show our faithful readers by reflecting on each savings milestone along the way? So, join us on a savings sojourn: Save $100 — Okay, you've made the first step and freed up $100. Congratulations, you've begun the journey and bought yourself some financial security. You could put it in a coffee can in the house in case you ever come up short one month. Or, you could open an Individual Retirement Account. Many financial institutions allow you to open an IRA with as little as $50 if you set up an automatic investment plan in which you save each month. Key benefit: When people ask if you've saved anything for the future, you can honestly answer "yes." Save $500 — Now we're talking. $500 buys you some momentum. You could put this in a CD and earn more than 5 percent for six months. And if you saved $500 each month for the next 20 years in a tax-deferred account and invested it to earn 8%, you'd rack up $708,000! $500 also makes a nice start to an emergency fund. Key benefit: If the car breaks down, you have a $500 head start on paying the bill. Save $1,000 — Congratulations. You've reached four figures. Having $1,000 on hand safeguards against myriad problems. Few car repairs cost more than $1,000. Other than a new roof or heating/cooling system, $1,000 takes care of most home repairs. In short, $1,000 is worth much more than that in terms of peace of mind. Key benefit: At five percent APY, $1,000 will earn $50 a year — finally you're money is working for you. Save $5,000 — By American standards saving $5,000 would be a nice amount to sock away in a year. So, if you save it in six months, you can stop saving for the year (though, we suggest you keep pushing forward.) For most of us, $5,000 is a reasonable emergency fund. Plus at five percent interest, it's earning $250 a year that you don't have to. Key benefit: If there's a financial surprise, you can tap your $5,000 rather than your credit card. $5,000 can keep you from ever paying credit card interest again. Save $10,000 — Five figures! You've now amassed much more than a year's worth of savings. Even if you didn't save another dime during the next 10 years, if your money earned 7.5 percent, you'd have $20,600. Key benefit: $10,000 can easily earn $500 a year, which is like getting a month of savings provided for you. Save $50,000 — You're now benefiting from the power of compound interest. Here's why: If you invest $500 a month at a seven percent rate of return, it will take you seven years to reach $50,000. But once you reach this milestone, if you continue saving $500 a month, it will take you less than five years to reach $100,000. Your savings is accelerating and you aren't working any harder. Key benefit: $50,000 is enough money to have a wide-ranging investment portfolio that could include stocks, bonds, money market funds, CDs and more. All of these are opportunities to make more money that you can now take advantage of. You are rich enough to benefit from the power of diversity. Save $100,000 — That first $100,000 is the Holy Grail of savings. Accomplish this by the time you're 40 and even if you never saved another dime, as long as you earned seven percent return, you'd have more than half a million dollars by the time you're 65. Key benefit: You can already make lifestyle decisions with this money. You don't have to chase a salary increase each year. You could change careers if you want to because your income has become less important. Invested sensibly, $100,000 is going to earn anywhere from $5,000 to $10,000 a year. So, if you can add just $2,000 or $3,000 a year to that, you will be — relatively speaking — financially secure. |
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