The old saying “if you fail to plan, you plan to fail” applies perfectly to personal money management. Financial experts agree that successfully managing your money doesn’t depend on how much you earn, but what you do with the money you earn. Consider these examples:
Example 1: If you have $3,000 on a credit card with an interest rate of 18%, it could take you more than 16 years to pay off if you make only the minimum payment (3%). In that time, you would pay nearly $2,800 in interest charges. In contrast, if you have $3,000 on that same card and paid $100 each month, you would be debt free in only 41 months. You would also save yourself nearly $2,000 in interest.
Example 2: Let’s assume at age 21 you set aside $3,000 each year for 15 years. If you let the money accumulate interest at 8 percent until retirement, you will retire with nearly $900,000. On the other hand, if you wait until age 36 to invest, and put $3,000 in every year until retirement, you will retire with less than half of what you would have earned if you started 15 years earlier. This is true even though the total amount invested is much higher ($87,000 vs. $45,000).
Example 3: Financing a $15,000 car at 6 percent interest for 5 years would cost you $3,315 more than if you purchased the same car at the same interest rate, but paid it off in 36 months.
If you consider the impact of what small adjustments to your spending plan can accomplish, it may seem surprising that so many people are struggling financially. However, a down stock market, high unemployment rates, rising debt loads, and the lack of personal savings have force many consumers to operate in “crisis mode.” And everyone can agree that when you are trying to put out a fire, it is hard to focus on anything but the flames.