Whenever I think about the financial pressures and the resulting stress most people face today, I’m struck by how often people underestimate the power of time. Every day, I come across people who know they need to change how they spend, save, and even how they invest, and yet they keep putting it off. “Not right now. I’ll deal with it later. Besides, maybe it’ll all work out and I can just keep doing what I’m doing.”
You’ve heard about the power of compounding. Every $100 invested each month at a 6% return becomes $16,000 in 10 years and $47,000 in 20 years. Well, the reverse is also true. Years of poor financial choices also grow exponentially. Average family credit card debt is currently $17,600 at an interest rate of 14.5%. If it’s not paid down, that’s $2,550 paid in interest every year! In 10 years it’s $57,000 owed in interest. This is the real cost of debt.
The take home message from this example is that even small shifts in financial direction make a big difference with time added to the equation.
It may be intimidating to think about making a big shift straight away, but since even small changes add up, it’s better to think about small incremental changes building over time. Start with a very modest goal, and over the months to come, work on adding to the small positive shifts to which you have already adjusted.
Small shifts in monthly spending can be aided by doing just one or two of the 5 Strategies to Save 15%-20% of Your Money. After 60 days, you can go on-line and use a simple savings calculator to calculate the result from these first small steps over 5, 10 and 20 years. If you’re reducing debt, use the interest rate you’re paying. If you’re saving money use a 6% rate of return.
What affect will these first small steps have on the quality of your life? Maybe it just starts with a bigger emergency fund, then free money for things you’d really like to do or own, but it doesn’t stop there. Do this right and the result can be financial freedom.
Time can be your best friend or your worst foe. Take the first baby steps now, and watch how your new best friend goes to work for you.