How do You Keep More of Your Money Over Time?
Keeping More of Your Money Over Time
In today’s world even with interest rates on the rise the returns you are receiving on your investments in many cases are not matching inflationary growth year to year. Think about this for a second; this means your principal investment is going actually to be worth less to you each year even if you are getting a modest return on your saved or invested funds.
If you are earning 2% on your investment principle and the yearly inflation rate is 2.5%; do the math.
Lump Sum Savings Method
Let’s use a $1200 and your savings or investment return for the year is 2%; you earn $24 for every $1200 invested and if the inflation rate is 2.5%; your inflationary amount for each $1200 is -$30; leaving you minus $6 for each $1200.
Dollar Cost Averaging Investing
In simple terms dollar cost averaging means you are contributing to a savings plan or investment plan every certain amount of days and a certain amount of money. (i.e., $100 per month on the first day or the month; this is 12 times $100 through the year or $1200; remember because you are depositing a $100 every month; your $100 the first month; grows to $200 the second month plus a small amount of interest earned on your first $100. This interest compounds each month on the growing balance of funds you are contributing; make sure your money is earning compound interest)
Many people will add to their 401K or RRSP or a variety of investment vehicles at the end of the year to take advantage of tax deductions; which would you think earns more for you over the year; $1200 invested once at year end or $1200 invested each month over 12 months; earning interest daily or monthly?
Don’t you think by contributing on a month to month basis you could have a chance of outpacing inflation versus only contributing a lump sum once a year?
Over a 25 or 30 year employment lifetime, your principle savings amount is not keeping pace with inflation if you are lump summing every year. (of course, you have the advantage of funds already invested earning compound interest)
Where to find the funds to investment monthly; please read the following blog; Tested North American Income and Expense Breakthrough Challenge
You may have a nice nest egg of cash. If you were lump sum savings at the end of each year, and you add in the fees for investing, what your financial advisor earns each year you are behind the 8 Ball before you even take your first retirement payment.
When you stop contributing and start accessing the interest earned from your nest egg you soon see that each year your interest earnings are not keeping up with inflation and your portfolio balance shrinks each year.
You will begin to notice that you are not able to enjoy the dining out, entertainment nights out, the vacations and the recreational and hobby activities at the same level from one year to the next as much as in the past. It is a slow creep but it creeps up on you and your golden years start to take on a tarnish.
I have offered you what simple method you can implement to keep more of your money.
Happy to hear the simple method you are using to keep more of your money.
May Your Savings Be With.
Listening to my recent guest podcast for insight into filling your piggy bank regularly; EPISODE #38 – Guest Interview – Rick Harris – Ready, Set, Goal©; The Everyday Millionaire Podcast
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