Start saving early and use a budgeting tool like CalendarBudget to keep track of your finances, and you will see how compound interest makes your dollars grow.
I was excited to hear recently, that with my modest savings of $65,000, that I’ll have 1 million dollars in 36 years (without saving anything else). Thank you compound interest and the rule of 72!
Budget programs and rule of 72 equals savings
For those needing a refresher on the rule of 72 (or if you’ve never heard of it), it goes like this.
Take the interest rate you are getting on your savings (investment) and divide it into 72.
The result is the number of years it takes for your money to double in size.
In my case, I estimate 8% (I estimate low for my interest rate – probably it will be between 8%-12%). So this gives me 72/8=9. So, my money doubles every 9 years, untouched.
36 years to get a million, just through compound interest. Of course, if the interest rate is more like 10%, then it would be 31.2 years. If it’s 12% interest, I hit 1 million in 24 years!
Of course, I won’t stop saving, so this goal should be attainable while I’m still young enough to enjoy it. And, this also assumes I don’t take anything out of it.
One other thing to consider here is what is the future value of that money. In other words, in the year 2043, I won’t be able to get the same things I can get now for 1 million. My 1 million won’t have the same buying power in 2043, due to inflation, so if my goal is to get 1 million dollars in today’s dollars, I’ll need to calculate how much that will be equivalent to in 2043, assuming a constant rate of inflation. Thankfully there’s a calculator to figure this out –> here. As it turns out, my 1 million is only worth just over $355,000 in today’s dollars, so I better keep saving :)
At any rate, the value of saving as early as possible is evident. Put money away now and let time do its magic!
Create a budget online with CalendarBudget to plan for major purchases, financial goals, and debt reductions. Contact us for budget programs that can track the effect of compound interest on your savings.