By Frank Conway
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein
OK, just be warned, despite the quotation from Mr. Einstein, this is NOT going to be a complex maths lesson, it is going to be a simple money lesson.
But first, what exactly is compound interest? Well, put simply, it is interest-paid-on-interest and it can really can work wonders for you!
Compound interest has very positive and negative consequences but for now, let’s focus on the positives of how it can work wonders for your personal finances.
Einstein’s Rule of 72 shows how long it will take to double your money, based on an anticipated interest rate. It’s really easy to figure out and super-important to understand. If you were to earn a 4% return on your money, it would take 18 years to double your money (72/4=18). If you can earn a higher rate of return on your money, the time to double your money shortens proportionately.
“So what” you might ask. Where the rule of 72 comes into play for you? Well, that’s easy.
Time and your ability to earn income are incredibly powerful. Let’s say you’re a college student and you invest €10 a week while in college and earn a 6% rate of return that compounds annually. At the end of 4 years, you’d have €2,158! But let’s say you decide to continue investing just €10 a week for the rest of your life until you retire at age 68 (that’s a total of 49 years, assuming you start at age 19, would have turned into €134,603. To put this in perspective, you actually saved €23,501 but the power of 6% interest compounding each and every year meant that your savings grew exponentially over time. And all for just €10 per week!
So spare a thought for Mr. Einstein and his Eighth Wonder of the World, it can really work wonders for you!
It will have to comply with EU rules but have no say
Despite a pledge by Theresa May that ‘Brexit means Brexit’ and the UK would chart a new course, it seems that Brexit does not mean the type of Brexit Theresa May considered in the early months following the divisive referendum result.
As recently as January, the UK Minister ruled out “partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out. We do not seek to adopt a model already enjoyed by other countries.”
But in little over a week since the UK triggered Article 50, the mechanism that sets in motion the actual process of exiting the EU, emerging views from the UK seem to point to a continued association with the EU.
“Brexit means Brexit” has been replaced with a “deep and special partnership”. And this is what the EU has in place already with many neighbouring countries.
IN respect to the Ukraine deal, its agreement, although somewhat controversial within some EU member countries, covers security and foreign policy as well as a deep and comprehensive trade agreement allowing Ukraine tariff-free access to much of the EU single market for goods in return for compliance with EU rules.
But it is the compliance with EU rules that could pose one of the single biggest optical dilemmas for the warring parties of the UK’s ruling Tory Party, some of which are seeking to restore aspects of British colonialism.
In less than a week, Mrs. May has signalled her willingness to bend to reality. She appears to have accepted the EU’s position on parallel negotiations, which the EU has firmly ruled out. More recently, she has also suggested that the free movement of EU citizens will continue for longer than promised during the 2016 referendum. And Mrs. May was quick to row back on what some perceived as veiled threats on broad security cooperation.
For many of the most ardent anti-EU members of the Tory Party, Mrs. May’s shifting positions and acceptance that the power dynamics are shifting in the EU’s favour must serve as a red flag. One of the major sticking points will be the reality that the UK will continue to be subject to EU rules that the UK has no say in crafting.
But for many British nationals, Mrs. May’s shifting position is likely to provide far more long-term benefits than they would have otherwise have enjoyed under an all out departure from the EU.
By Frank Conway
Before you get carried away with your spending plans, spare a thought for some really important money incentives that will super-boost your net worth.
Many employers love to brag about how well they care for their employees. And while it can be fashionable for employees to complain about how much the Government demolishes their pay cheque, recent college grads starting their first job have a golden opportunity to take some free cash from both their employer and Government too.
Here is how it all works.
Imagine you want to save €100. The normal way is to work hard and save. But, doing this after you get paid (and the Government takes its tax), that €100 saved comes out of your remaining income.
But what if you could save the €100 BEFORE the Government takes its tax? Well the answer is you can. In other words, you don’t have to save the full €100 at all. In fact, depending on how much you earn, you might only have to save €80 or even €60 and still manage to put €100 into your savings account. It’s called ‘tax relief’ and it’s designed to get more people to save for their long term money needs. In other words, Governments give you back some of your tax as long as you save it for specific long-term needs (in this case, post-employment).
Employers have also gotten in on the act and many will even match your savings (up to certain limits). So, for every €100 you put aside into your long-term savings account, employers often top that up with an additional €50 or €100.
So, while you might actually save €80, with the Government giving you back tax and employers giving you extra cash, you could end up with as much as €200 in your savings…now that really is a great rate of return!
So don’t fret about the free lunches and take the free cash instead, you’ll be all the richer for it!