The Miracle of Compound Interest (This is actually pretty useful)

Some information from my Budgeting class. I know this is dry, and I'll try to keep the equations to a minimum, but this stuff is very important. The main points are that the more we save, the more it adds up, but also that we can really make our money work for society. First, I'll do a couple of personal finance things, then, I'll get into the stuff that really excites me (I know, I'm lame).

Lets say you want to retire when you are 65. You want to live on 100,000 dollars a year for twenty years. (This is just an example. Hopefully we'll all live to be 105 and we won't have to spend 100,000 a year, but this is a good example).

This examples assumes that you can get an 8 percent return on your investment. (The long term stock market average is a 10 percent return). You want to live on your retirement for 20 years. PVA is present value of an annuity, PMT is a payment, PVIFA is present value of an annuity factor.

Set it up as a PVA Problem:
PVA = PMT(PVIFA, 8%, 20 per.)
PVA = $100,000(9.8181)
PVA = $981,810

The main point is you would need right at a million dollars to retire for twenty years at 100,000 dollars a year. Seems pretty unrealistic right? Well lets see the magic of compound interest at work.

There's a lot math involved, which I can go into later if anyone wants, but the point is that if you start when you're 25, and save 2,400 dollars a year until you're 65, you can save right at a million dollars. This comes out to about 160 dollars a month, which really isn't that much.

Even if you haven't started saving, you can still make up a lot of lossed ground. Basically, there's a rule of seven where your money will double every seven years. So if you have 250,000 in savings by the time you're 51, you can still have a cool million by the time you're 65.

All this is very good. You know, you won't be a burden to your family, you won't have to work at McDonald's, you'll be able to help other elderly people, etc. But there is something even more exciting.

Many schools have endowments. Basically, endowments are managed funds that grow while paying out some money for a good, such as a professors salary. The money will keep growing, and you don't have to increase the endowment.

This can also be used for charitable donations.

Maybe you want to have a fund at your church. Maybe you want to give 1,500 a year to help pay elderly care or for the church's nursery, or something else. Well, if you had an endowment of 9,590 dollars, you could run that fund, without adding any money, for eight years. (Compare this to the 12,000 dollars it would cost to fund without an interest bearing account).

The point is that you can stretch out money even further by investing it. I think I've decided on something mixing all my views on charity, money, tithing, saving, and everything else. But that will be another post.

The point is, save as soon as you can. Unless you have debt (low interest student loans don't count). Then pay off your debt, and then save.