Can You Really Buy Hope for $2.99?

Buy hope for $2.99?

Can You Buy Hope for $2.99?

Today I went shopping with my wife at the consignment shop.  She wanted to check out some used furniture and I wanted to check my balance to see if I had money waiting for me.

We found a nice old dresser for the bedroom, but we did not buy it.  It was a solid old unit, made with real wood and dovetail joints.  But I decided to get rid of some of my clothes that wouldn’t fit in the closet instead of buying a dresser for more storage.  This seemed like a good way to save some money and avoid buying yet another thing.

I picked up $3.88 for some old clothes that I sold.  Considering the decision to get rid of some clothes, I can look forward to more payouts like this.  I like shopping at a store where I can walk out with more money than when I walked in!

On the way out of the store, I saw something for sale at the check-out.  There were some impulse items for sale with a sign that read:

  “Hope $2.99”.

 I was intrigued.  For one thing, I had $3.88 in my wallet, so I could actually afford to buy what they were selling.  But how can you sell hope for $2.99?

I moved in closer to see what was in the packages that you could get for $2.99.  I was disappointed to see that it was a package of rope.  The sign actually said “Rope $2.99”.

Is There Still Hope?

Even though hope was not for sale as I had initially thought, I began to wonder... could you really buy hope for $2.99?

For this exercise, let’s assume that if you have some money that you have some hope for the future.  If you were completely broke and started saving $2.99 every day, would this be enough to provide hope for a stable financial future?

Saving $2.99 per day adds up to about $90 per month.  First, let’s look at how this would grow in a savings account.

If you put away $2.99 per day (round to $90 per month) you would have:
$5,400 after 5 years
$10,800 after 10 years
$21,600 after 20 years
$32,400 after 30 years

You would do a little better in a bank account at 0.85% interest:
$5,514 after 5 years
$11,268 after 10 years
$23,536 after 20 years
$36,891 after 30 years

If you really want to buy some hope for $2.99, let's try to find a better rate of return.

What if you invest the money in the stock market instead of a bank account?  The stock market can go up or it can go down.  Over the long term, the historical rate of return is around 8%.

Here's how your daily contribution of $2.99 would accumulate with a 8% rate of return:
$6,613 after 5 years
$16,465 after 10 years
$53,011 after 20 years
$134,132 after 30 years

You can check out these calculations yourself with my Saving Calculator.  Just put in a $0 starting investment amount, set the monthly investment amount to $90, and set the interest rate for your investment scenario.

It is starting to look like you can buy hope for $2.99 after all.  If you wanted to save up a million dollars assuming an 8% average return, it would take just over 54 years.

If you start buying hope soon enough, you could end up with some real money.

Not to dash your hopes, but there are some things we have not considered in the simple calculations above.  Inflation over time tends to reduce purchasing power of your money in the future, so what looks like a lot of money in these calculations may not buy as much as you would think in the future.

Also, you will have to deal with taxes.  One way to avoid paying taxes on a retirement investment is to contribute to a Roth IRA.  You do not have to pay capital gains taxes if you follow rules that apply to withdrawals.

Buying hope for $2.99 seems like a pretty good deal.  The best time to start buying hope was 54 years ago.  The second best time to start is right now.

Penny Pincher Journal

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Pay This Bill- It Will Make You Rich!

Pay This Bill- And Get Rich! 

Your Most Important Bill!

Would you be surprised if I told you that by paying one of your bills you will become rich?  The strange thing is that most people are not paying their most important bill.

Let’s start by figuring out which bill could make you rich if you pay it.  Is it your mortgage?  Your electric bill?  Your grocery bill?  Your tax bill?  It’s none of these, and most people will not figure it out without some clues.  Part of the reason this most important bill doesn’t get paid is because people don’t even think about it.

You’ve probably heard the expression “pay yourself first”.  With this clue, do you know which bill is your most important bill to pay?

Image Credit:  Public Domain Image , Source: https://pixabay.com/en/letters-envelopes-letter-stack-post-286541/

What Does It Mean to Pay Yourself First?

You may have heard the common personal finance advice to “pay yourself first”, but what does that mean?  Paying yourself first means to take money for your savings or investment out of your paycheck first, and then pay other bills, such as the ones mentioned above.

Paying yourself first is not what most people do.  Most people spend their paycheck until it is gone and then hang on to make it to the next payday.  If you don’t pay yourself first, you will always be doing this!  The only way to break this cycle is to pay your most important bill first and save or invest money to build your wealth.

But What If There Is No Money Left After Expenses?

I think many people intend to save or invest any money that happens to be left at the end of the month, but there just never happens to be any left.  It is simply too easy to spend money if it is available.

People respond differently to bills than they do to goals.  If you give most people a bill, they manage to pay it somehow.  They understand that there are consequences for not paying a bill.  Not paying yourself first also has big consequences that grow as you pass your peak earning years and your income starts to decline.

 Even worse, the longer you wait to start paying yourself, the less time that your money will have to grow.

Think of the money you need to invest to build a retirement fund as a bill and pay that bill first.  If you run out of money, you’ll need to cut something else instead of being late to pay your most important bill!

How Much To Bill Yourself?

If you have a detailed budget, you may be able to analyze your expenses and determine a reasonable amount to save each month.  If you are like most people, you do not have a detailed budget.  In this case, start with a small amount of savings- such as $50 or $100- and take this out of your paycheck before spending on anything else.

Another way to approach deciding how much to pay yourself is to set an investment goal and work backwards to figure out how much you need to save each month.  Using an estimated average return on investment, you can try out different monthly contribution amounts to see how long it would take you to reach your goal using this investment goal calculator.

You may be surprised to see how much even a small regular contribution can grow over time!

How To Pay Yourself First

Pay your most important bill by putting your investment funds from each paycheck in a savings account or investments account away from your other money to help avoid spending it.  If you leave your investment funds in your checking account with your other funds, it is more likely you will spend it rather than investing it.

I automatically take my investment contribution out of each paycheck to fund my 401K retirement plan through my employer.  Contributing to a 401K plan has two major advantages:  1) you contribute funds on a pre-tax basis, and 2) many employers offer matching funds.  I get $1 of “free” money from my employer for every $2 that I contribute.  If your employer offers a 401K program, make sure you are not leaving free money on the table!

Even if you are already contributing to a 401K plan or do not have access to a 401K plan at work, you can benefit from other investment types.  I contribute to a Roth IRA every month using post-tax funds.  The advantage of a Roth IRA is that you will not need to pay taxes when you take money out of a Roth retirement account after it grows.

Regardless of how you invest the funds that you pay yourself, you need to have money available to invest.  Adjust your spending to make room for your new bill by cutting back on your least important spending- such as fast food or buying items you don’t really need.

If you think of the money you need to save or invest each month as a bill and pay it, your spending will naturally adjust just like it does when you take on any other new bill that you have to pay.

Most of your bills increase over time, and your most important bill should increase also over time as your income increases and you find ways to make more money and cut your expenses.  The point of paying yourself first is to treat the money you save and invest as your most important bill and pay that first.

If you are having trouble paying yourself, start by cutting your expenses so you can afford to pay your most important bill.  If you are looking for ideas to save money, check out Penny Pincher Journal to find more than 101 things you can do right now to save money...

Make It Happen!  Next Steps to Pay Yourself First

• Decide how much to pay yourself every month or every payday
• Use an Investment Calculator to help set your goals
• Make sure you are getting the maximum company match 401K contribution
• Adjust your spending to make room for your most important bill
• Check out this free ebook with 101 tips to save money and cut expenses
• Set up an automatic deposit into an investment account

Dr. Penny Pincher Bio:
Today’s post is by Dr. Penny Pincher at Penny Pincher Journal.  In 2013, Dr. Penny Pincher bought a puppy on impulse that changed his life.  He realized he would have to quickly find ways to spend less money to cover this unplanned expense that put a big dent in his budget.  He started searching for ways to spend less money and sharing penny pinching tips on his blog.  You might wonder if Dr. Penny Pincher is really a doctor... yes he is- with a Ph.D. in engineering.

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Top 3 Ways To Build Wealth With FREE MONEY

Yes, There Really Is Free Money!

The other day I was paying a bill for a visit to the doctor's office.  The bill was unexpected and was for over $100, so this was painful.  I set the bill in front of me as I had my morning coffee.  I wanted to examine the bill to see if there were any extra charges included that I could ask to have removed, but there was almost no information on the bill other than the amount that needed to be paid and the due date.  After thinking about the bill for awhile, I realized that I could use my Health Savings Account (HSA) to pay all of it instead of taking money from my very limited checking account.

I had forgotten about my HSA.  My contribution comes out of my paycheck every time and I don't even see it.  My balance had reached nearly $2,000.  This is a nice cushion for health care expenses.

This got me thinking about free money and how I am using free money to build my wealth.

Health Savings Account- Get 34% Free Money

The Health Savings Account is a program where you can put pre-tax money into a dedicated savings account and use it for health expenses.  The "pre-tax" part is where the free money comes in.  The Federal income tax rate is about 25% and the state income tax here in Iowa is about 9%.  This means that I gain about 34% on money that I put into the Health Savings Account- not bad.  So if I put in $1,000, about $340 of this is free money- it would have gone to taxes otherwise.  My HSA plan even allows you to invest the money in the HSA into investment funds so it can grow until you need it for health expenses.

401k Plan- Get More than 50% Free Money

There are some other sources of free money that I am using to build wealth.  The big one is my 401k program at work.  My employer will match retirement contributions at 50% up to 4% of my salary.  So if I put in $2,000 and my employer will put in $1,000 of free money.  I like free money and always contribute enough to get the maximum employer matching funds.

The other free money aspect of the 401k plan is that you contribute pre-tax money, and the money invested grows without taxes, at least until you take it out.  Unfortunately, you have to pay taxes on the gains when you withdraw from a 401k fund.

I also contribute to a ROTH IRA investment using post-tax money.  This is money that I have already paid taxes on, but I will not need to pay taxes on my ROTH IRA funds when I take them out someday.  I like the idea of not paying taxes on my gains, so I have some ROTH retirement investments in addition to my 401k investments.

529 Plan- Get Free Money For College

Another way I am using free money to build wealth is my 529 plan contributions.  A 529 plan is a way to save for college that provides some significant tax benefits- more free money.  Gains on investments in a 529 plan are not taxed.  In addition, Iowa and many other states offer state income tax offset for contributions.  This is a great way to save money for college and take advantage of free money for college.

It Takes Money to Make Money...

All of these ways to get free money require investing your own money to get the free money.  For the Health Savings Account, you need pre-tax funds to contribute.  For the 401k plan, you also need pre-tax funds to contribute, and for the ROTH IRA you need post-tax funds to contribute.  And for the 529 education program you need post-tax funds to contribute.

Where can you get money to contribute to take advantage of the free money?  You may need to pinch pennies in your budget to free up funds to contribute to these programs.  One of the reasons that these programs provide free money is to encourage people to save and build wealth.

Find ways to save money on things you don't really need and put this toward saving and investing- and get your free money.  You can start small, with only a few dollars each month.  The important step is to get started and watch your account balances grow over time.

If you need some ideas on how to get money to invest, here is my free book: 101 Ways to Spend Less Money Now.

Penny Pincher Journal

Copyright © 2015 by Dr. Penny Pincher.  All Rights Reserved.  Privacy Policy

Savings Calculator for Savings Accounts with Interest

Savings Calculator- How Much Will Your Savings Be Worth?

The bad news:  Interest rates on savings accounts are very low.  It is almost impossible to find a savings account with an interest rate of even 1%.

The good news:  You can still grow your money without risk in a safe savings account.  But how fast will your savings account grow?

The Savings Calculator calculates how much your savings account balance grows over time.  Just enter your investment time, your starting balance, and how much you save every month.  You can also adjust the interest rate (rate of return) and click "Compute".

Savings Calculator by Dr. Penny Pincher How much will your savings grow? Copyright (c) 2014. All Rights Reserved http://pennypincherjournal.blogspot.com

INPUTS

Enter Investment Time (years):

Enter Starting Investment Amount ($):

Enter Monthly Investment Contribution ($):

Enter Average Annual Rate of Return (%):

RESULTS

Amount Obtained in Current Dollars ($):

Savings Interest Calculator

With the default settings, the Savings Calculator will calculate how much money you will save in 10 years if you start with $1,000 and save $350 per month.  The interest rate of 0.85% on a savings account is pretty good right now, but you can find savings accounts at 0.85% interest, especially if you look online.  The Savings Calculator uses monthly compounding to calculate the interest on your savings account balance.

If you are interested in growing money faster than you can with a savings account, check out this Investment Calculator.  It is set up to show you typical returns from stock market investments, including effects of capital gains taxes.  However, when you move from a savings account to investing in stocks, you will lose the safety of knowing that you will not lose money from a bank account.  But with the interest rate so low, you might want to take some risk for the possibility of a much higher return.

With the Savings Calculator, you can try out some scenarios to see how your savings grows.  For example, you can check how fast your savings grows if you save $100 extra per month.  Is it worth moving to a different bank to get 0.25% more interest on a savings account?  You can use the Savings Calculator to find out how much your savings will grow.

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How to Become a Millionaire- The Millionaire Calculator

How to Become a Millionaire

You can become a millionaire by inheriting a million dollars or more- that is the easiest way!  As long as you still have one million dollars after paying taxes on the inheritance, you're all set.  But most people do not have wealthy relatives who will leave them enough money to become a millionaire.

You can become a millionaire by landing a high paying job such as a doctor, CEO, or professional athlete.  Some highly paid individuals make more than one million dollars every year from their job.  But earning such a high salary takes hard work and years of training- and not everyone has the skill and talent to earn a high salary.

What else can you do to become a millionaire?  The most realistic way for most people to become a millionaire is through investment.  If you invest a small amount of money slowly and steadily, you can become a millionaire.  But how much do you need to invest, and how long will it take to become a millionaire?

The Millionaire Calculator

This JavaScript calculator will tell you how long it will take to become a millionaire.  The investment goal is set at 1 million dollars.  Enter your starting investment amount (it is zero if you haven't started investing yet), and enter the amount you can invest every month.  Click "Compute" to find out how long it will take to become a millionaire.

Millionaire Calculator by Dr. Penny Pincher How long to reach your financial goal? Copyright (c) 2014. All Rights Reserved http://pennypincherjournal.blogspot.com

INPUTS

Enter Investment Goal ($):

Enter Starting Investment Amount ($):

Enter Monthly Investment Contribution ($):

Enter Average Annual Rate of Return (%):

Adjust for Inflation?: Enter annual inflation rate (%):

Adjust for Capital Gains Taxes?: Enter capital gains tax rate (%):

RESULTS

Time to Reach Investment Goal (years):

Amount Obtained in Current Dollars ($):

Total Gains from Investment ($):

Total Capital Invested ($):

How Long Will It Take To Become a Millionaire?

You can adjust parameters in the Millionaire Calculator such as your rate of return on investment, and whether or not inflation and capital gains tax is taken into account.  The long-term historical return from the stock market averages about 8% per year, so this is a reasonable figure to use for planning.  The long-term inflation rate is around 3%.  If you want your future investment to be worth 1 million dollars in today's dollars, you will need more than 1 million dollars.  Prices tend to go up over time due to inflation.  For example, a car that costs $35,000 today might cost $70,000 years in the future.  You can check the "Adjust for Inflation" box on the calculator so that your investment will have 1 million dollars of value in the future when each dollar does not buy as much.  As a result, you will need to get more than 1 million dollars to reach your goal.

Capital gains taxes are taxes that are collected when the value of your investment goes up.  The good news is that you may be able to avoid capital gains taxes if you invest in retirement accounts such as ROTH, IRA, or 401K plans.  If you just want to put money in the stock market and take it out any time without any restrictions, then you'll likely need to pay capital gains tax.  You can check the "Adjust for Capital Gains Taxes" box on the calculator to see how this affects the length of time to reach 1 million dollars through investing.

Read more about how to get rich through investing.

Penny Pincher Journal

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Investment Calculator- How Long to Reach Retirement?

Investment Calculator

This investment calculator determines the time to reach your financial goal.  How long would it take to make a million dollars from your investments?  This calculator provides an answer.

This investment calculator allows you to input the average rate of return from your investments as well as allowing adjustment for inflation and capital gains taxes.  The investment calculator is developed in JavaScript and runs in your web browser.  Just enter your financial goal, set the parameters, and click "Compute".

The default goal is one million dollars.  Depending on your retirement plans or financial goals, you can adjust the Investment Goal in the investment calculator up or down.

Investment Calculator by Dr. Penny Pincher How long to reach your financial goal? Copyright (c) 2014. All Rights Reserved http://pennypincherjournal.blogspot.com

INPUTS

Enter Investment Goal ($):

Enter Starting Investment Amount ($):

Enter Monthly Investment Contribution ($):

Enter Average Annual Rate of Return (%):

Adjust for Inflation?: Enter annual inflation rate (%):

Adjust for Capital Gains Taxes?: Enter capital gains tax rate (%):

RESULTS

Time to Reach Investment Goal (years):

Amount Obtained in Current Dollars ($):

Total Gains from Investment ($):

Total Capital Invested ($):

Investment Calculator Instructions

Enter Investment Goal ($):
How much are you trying to accumulate from your investments?

Enter Starting Investment Amount ($):
If you a current investment to use as a starting point, you can enter that amount.  Otherwise enter 0 if you do not have any investment already.

Enter Monthly Investment Contribution ($):
Inter the amount you can invest every month going forward.

Enter Average Annual Rate of Return (%):
The long-term historical return from the stock market is about 8%, including the Great Depression and other economic downturns.

This page provides a good reference on compound interest calculations.  Monthly compounding of investment returns is used in the Investment Calculator.

Adjust for Inflation?:
The Investment Calculator allows you to choose whether or not to adjust your investment goal for the effects of inflation.  The long-term average rate of inflation is around 3%.  You may want to adjust your goal for inflation  If your investment goal is to reach one million dollars, you will need more than one million dollars in the future to purchase what one million dollars can buy today.  Since prices are rising slowly but steadily, you can automatically adjust your investment goal to account for inflation.

Adjust for Capital Gains Taxes?:
If you are investing in taxable investment accounts, you'll want to account for capital gains taxes.  For example, if you make $1000 of gains from an investment and you have to pay 28% capital gains tax, you'll need to come up with $280 for the IRS.  If you check the capital gains option, the tax payment is taken from your investment amount.

If your investment is in ROTH, IRA, 401K, or other tax-deferred investment accounts, you will not need to pay capital gains taxes if you follow the rules.

When payment of capital gains tax is selected, the total gains plus total capital invested will exceed the account balance result.  The difference between these totals reflects the removal of funds to pay taxes as capital gains are realized.

Investment Calculator Results

Time to Reach Investment Goal (years):
This result shows how long it will take to reach your investment goal in years, based on the input parameters.  If it will take more than 100 years to reach your goal, the calculator returns "More than 100!" for the time that it will take.  If this happens, either try investing more or choose a smaller goal.

Amount Obtained in Current Dollars ($):
This result is the amount obtained at the time your goal is reached.  The Investment Calculator uses monthly totals, so the amount obtained may be slightly larger than the goal at the end of the last month of your investment.  If you adjust for inflation, the amount obtained can be significantly more than your goal- this reflects the reduced value of money in the future due to inflation.

Total Gains from Investment ($):
The total gain from your investment is shown.

Total Capital Invested ($):
Your total investment of capital is shown.


Recommended Reading:
How to Make 1 Million Dollars by Investing Your Car Payment

How to Get Rich

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Mortgage Payment Calculator

Mortgage Payment Calculator

The Mortgage Payment Calculator below estimates your monthly mortgage payment.  Enter your home's value, the amount borrowed, and interest rate to find out your monthly payment.  The Mortgage Payment Calculator is written in JavaScript and runs in your web browser.  Find out your mortgage payment right now for free!

If you know your tax or insurance cost, you can enter these costs into the calculator.  If you don't know the tax and insurance costs, the Mortgage Payment Calculator also estimates your property taxes and insurance costs and calculates your monthly payment including principal, interest, taxes, and insurance.

Mortgage Payment Calculator by Dr. Penny Pincher Calculate monthly home mortgage payments Copyright (c) 2014. All Rights Reserved http://pennypincherjournal.blogspot.com
Enter value of home ($):
Enter amount borrowed ($):
Enter interest rate (%):
Enter length of loan (years):
Step 1:	Click to Compute Monthly Principal and Interest Payment and Typical Taxes and Insurance
Principal + Interest Monthly payment ($)=
Taxes + Insurance Enter annual property tax ($): (typically 1.38% home's value) Enter annual insurance cost ($): (typically 0.35% home's value)
Principal + Interest + Taxes + Insurance Monthly payment ($)=
Step 2:	Optional: Click to Update Total If You Want Enter Your Own Tax & Insurance Costs

Mortgage Payment Calculator Instructions

Enter the basic information required to calculate mortgage payment amounts in the top lines of the calculator:

• Value of your home
• Amount borrowed
• Interest rate, for example enter '5' for 5% interest
• Length of loan in years

Click "Compute" to see your monthly mortgage payment for principal and interest.  The calculator will automatically calculate typical property tax and insurance cost based on the home's value and enter these in the calculator.

The calculator will also calculate your total monthly mortgage payment including principal, interest, taxes, and insurance.

Optional: If you know your actual property tax or insurance costs, you can replace the automatically calculated estimates and enter your own values.  Click "Update" to update the monthly mortgage cost using your own figures for taxes and insurance.

This monthly payment formula is used in the Mortgage Payment Calculator.

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