Want to double your money? Good news, it is simple to do.
Play what The Roadside Scholar calls Double Time – an easy exercise that shows what to do to double your cash.
1. Pick your time period for the double. Example – 4 years.
2. Calculate the yearly savings amount.
Divide 72 by the number of years for the double. Example: For a 4-year goal – 72 divided by 4 equals 18%. Each year dollars equal to 18% of the beginning balance must be added.
3. Break down the yearly amount into a monthly savings amount.
Example: Dividing 18% by 12 = 1.5%. Each month, an amount equal to 1.5% of the beginning monthly balance is added to the account.
4. Calculate the monthly dollar amount to contribute.
Example: Multiply the monthly savings factor of 1.5% by the beginning balance in the account. Assuming a balance of $5,000 - $5,000 multiplied by 1.5% = $75. Contribute $75 each month for one year. For a $2,500 starting balance the amount would be half of $75 or $37.50.
5. Contribute slightly more per month in later years.
Because the dollar balance grows each year, the 1.5% monthly factor equals a slightly higher dollar number each successive year. In a 4-year example with a starting balance of $5,000, the monthly additions are $75 in year 1, $89 in year 2, $104 in year 3 and $123 in year 4.
The typical reaction to Double Time is disbelief, “It can’t be that easy.” After running through the steps again to confirm the math, the reaction usually becomes, “Why didn’t someone tell me this before? I can do that.”
Importantly, when the growing balance is invested, the profit from investing speeds up the double time. For example, earning 5% per year on the account improves the double time in the 4-year example to just over 3 years.
Roadside Scholar Tip: Play Double Time: see how simple it is to double your money.
**Note Double Time is an estimation tool. The final balance will be within a rounding error of a double based on compounding specifics.
For more information and easy to understand explanations of important money matters go to www.theroadsidescholar.com or purchase The Roadside Scholar: Amazing Money Lessons from Behind the Fence, which includes a more detailed description of Double Time.