The news is by your side.

UNDERSTAND THE TIME VALUE OF MONEY

0 1

Get real time updates directly on you device, subscribe now.

By this, I mean understand interest rates. Understand what you are earning on your money, and, just as
importantly, understand what you are paying to borrow money (e.g., credit cards).
Let’s take a simple case:
▪ You put $10,000 in an account that earns you 5 percent interest annually for five years.
▪ After one year, you will have $10,000 + ($10,000 x 5 percent) = $10,500.
▪ After two years, you will have $10,500 + ($10,500 x 5 percent) = $11,025.
▪ After five years, you will have $12,762.
Now, remember the credit card example, in which you’re paying interest (at a much higher rate than
you get in a savings account—because that’s how credit card companies make so much money):
▪ Purchase a $10,000 home entertainment system with your credit card.
▪ Your credit card has an APR (annual percentage rate) of 15 percent.
▪ You pay the minimum payment of 2 percent of the balance.
▪ Your first payment is $200, of which $125 goes to interest and only $75 goes to
principal.
▪ It will take almost seven years and close to $16,000 to pay off that $10,000 credit card
purchase. So, you’re paying an extra $6,000 for something because you bought it before
you could actually afford it!
It seems like a good concept: You save money, you invest it properly, and it goes to work for you. On
the other hand, if you borrow money and pay higher interest rates, money starts working against you,
and the slippery downward slope begins!
If you understand this principle (and the previous ones regarding credit card debt), then you will
always pay off credit card debt before saving money (the interest rate you’re paying is always higher
than the interest you will earn on savings). Actually, the better choice is not to ever have credit card
debt.

Get real time updates directly on you device, subscribe now.

Leave A Reply

Your email address will not be published.

Subscribe to our newsletter
Sign up here to get the latest news delivered directly to your inbox.
You can unsubscribe at any time

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More