Meet My Friend: Golden

Meet Golden (names have been changed to protect the fabulous). She’s one of my favorites. Uber cool style, great friend and extremely talented and smart. I get a lot of my inspiration from her. She is the Queen, hands down, at getting really nice and qualitative clothing for fabulously fashionably frugal prices. She is so money!. So some background info on Golden. She is the third daughter of a set of four. Her mother and father have instilled in her principles that I am still attaining for. Very bright academically and quite the social butterfly. Talented however in other areas as well. She’s nice on the piano, guitar, spoken word, dance and … well this is still my blog. In recent noteworthy news, she’s traveling across the ocean to get her MBA from a very prestigious university in Germany. She leaves in less than two weeks. She’s my bestest. My sister from another mister.

Golden is so money in that she has accumulated over $10,000 in savings. But oh so not money, in that she keeps in a regular bank account earning a meager 1/2%. Golden my love! Have you ever heard of compound interest on high yield savings accounts? High interest bearing Certificates of Deposits (CDs)? The stock market!?!?! (need a moment to catch my breath…mini panic attack)

Yes. I know you have heard of all of the aforementioned investment accessories, but why haven’t you purchased? Countless occasions I’ve tried to peer pressure her into the investment side of things. “All the cool kids are doing it. Come on. Try it”. I’ve even offered up my services as her personal financial finanshionista (I’m always looking for new money).

It is so important to have your money moving. Think of it like the movie SPEED. If you slow down the coumpound interest bus, then KABOOM!. Big bangs and explosions are soon to follow. Death to all!

Sorry, I got a little excited. But seriously. Compound interest is the “most powerful force in the universe“, according to my buddy Albert Einstein. Even before he created the most awesome and deadly weapon of all time, he knew that no force, not even the Atom Bomb, could compare to that of compounding interest. (This is an egregious exaggeration)

Just what exactly is compounding interest, you ask. Well my friend compounding is continuously adding interest earned in the current period to the principal and continuing like that forever. So as the balance increases, even if due solely to the accumulation of interest, the payment amount of interest continues to increase and then you’ve got yourself a compounding asset machine. So, so money.

For example, if I have a Coach Bag Savings Account with $500 as my intial amount or my principal and an interest rate of 3.5% (found at http://www.bankrate.com), then the next period (day, month or year) I will have $517.5 found by $500 X 1.035; by period two I will have ($517.5 X 1.035) $535.61. By period six my Coach bag account will have a balance of $614.63. That is a basic return on investment of 23% in only six periods.

So Golden, if you were to invest that $10,000 in a Certificate of Deposit, meaning if you were to lend your money to a bank and they pay you interest and your original principal amount when the term ends in return, at 4.25%, by the end of year one you would have a balance of $10,425. That’s without any withdrawals or extra deposits. Now, here’s where it really gets exciting. If you were to turn around and re-invest $10,425 for six months at 6%, you would have a balance of $10,733; for one year: $11,050.

Golden, you are almost there. Now it’s time to make your money work for you. In a matter of two years, you could have made more than $1,000 in interest payments alone. Your money, just not so money yet.

That will be $45 bucks!

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