The Money Knot this month explores a book from 1926, The New Mathematics, by John C. Stone. (If you would like to sign up for the Money Knot and get a copy of this month’s issue, “The Good Ole Days” click here)
I was so intrigued by this book because, even though it’s a “Math” book, it has extensive sections on how to deal with money. Good things like the basics of banking and budgeting.
I was tickled by this table. Who knows, it may be the original table for the concept of “Dollar Cost Averaging” since it’s actually about saving a dollar a year!
The idea was then, and still is now, that if you sock away even a small amount and it grows by some percentage of interest, then that small amount becomes big. Just a little bit makes a difference over time. Our table shows that $1 invested over 40 years becomes between $61 or $164 dollars, depending on how much annual interest you are getting (2 – 6 %). Note: this chart and our numbers are “compounding” once a year. Most places do it more often than that, but we are keeping it relatively simple here.
The problem these days is that scale. Somehow we scoff at the chart. 40 years! Who can wait 40 years! And only $100?
To see the value of this concept for yourself, bring it closer to home. Don’t think of how much money Barbra Streisand’s Malibu house is worth ($12 million)…okay, now you’ve thought of it. Bring it back home.
How much do you make an hour? If you put what you make an hour in a conservative investment at say 4% for 40 years you would have 100 hours of savings. Stated another way saving 1 hours gives you about 2.5 weeks of pay. Yes, I know inflation will erode some of that, and does that circumstance make it less of a smart thing to do to take an hour a YEAR and save it? What if you took an hour of pay a week? That’s like 50 or 52 hours a year. Now take that at 4% for 20 years. That comes out to 1,600 hours or about 40 weeks of pay, over 9 months of pay.
So the real question is would if be worthwhile for you to work an hour a week for your long term savings? It can add up! Start now…!