I started the Finance portion of my MBA Degree last week. After sitting through 8 classes of Marketing, Economics, Human Resources, and other pre-requisites, I finally had the necessary requirements to sit for Financial Management. Finance is the most popular concentration in the MBA program - however, in order to take ANY other Finance related course, the introductory course was required. So, as frustrating as it was to wait 4 semesters, I'm glad I can finally concentrate on this area and not have to worry about Leadership qualities or Marketing decisions.
To get started - the course started with a discussion on Discounted Cash Flows. Basically, for anyone not familiar with the idea, the calculations necessary to determine how much money you should invest NOW, to have a specified amount in the future. For example: I'd like to pay for my kid's college. If I estimate that I need at least $100,000 (probably light based upon tuition increase rates), how much should I set aside each year for the next 20 years to have $100,000.
The idea centers around a common investing mantra: A penny saved is a penny earned. So, obviously, I do not need to invest $100,000 over 20 years to achieve that amount. In actuality, if I assume a 5% annual return on my investments (it seems crazy in current market volatility, but its actually pretty conservative), I would only need to invest $37,688.95 today to have $100,000 twenty years from now!
That's insane. That's the value of compounding interest!
I truly believe that most Americans have no clue what I just talked about. That's really where the problem with debt and savings come from (aside from the refusal to live below our means). The general public does not understand that you can make money off of money made! The $37,688 investment will grow at 5% a year up to $100,000. It takes time and patience, but the money will be there. That's why it's so depressing that 49% of Americans are not saving for retirement. EVERY LITTLE BIT COUNTS! $200 a month for 30 years will turn into - $159,453.23!! $20 a month still earns $15,945.32!
It's incredible to me. With social security likely to be non-existent in 30 years - not taking advantage of 401(k), IRA, or personal investment accounts is just stupid. I realize times are tough and some people struggle to find an extra $20 a month - however, if your life was on the line, would you be able to give up that iPhone? I'd like to think so.
To get started - the course started with a discussion on Discounted Cash Flows. Basically, for anyone not familiar with the idea, the calculations necessary to determine how much money you should invest NOW, to have a specified amount in the future. For example: I'd like to pay for my kid's college. If I estimate that I need at least $100,000 (probably light based upon tuition increase rates), how much should I set aside each year for the next 20 years to have $100,000.
The idea centers around a common investing mantra: A penny saved is a penny earned. So, obviously, I do not need to invest $100,000 over 20 years to achieve that amount. In actuality, if I assume a 5% annual return on my investments (it seems crazy in current market volatility, but its actually pretty conservative), I would only need to invest $37,688.95 today to have $100,000 twenty years from now!
That's insane. That's the value of compounding interest!
I truly believe that most Americans have no clue what I just talked about. That's really where the problem with debt and savings come from (aside from the refusal to live below our means). The general public does not understand that you can make money off of money made! The $37,688 investment will grow at 5% a year up to $100,000. It takes time and patience, but the money will be there. That's why it's so depressing that 49% of Americans are not saving for retirement. EVERY LITTLE BIT COUNTS! $200 a month for 30 years will turn into - $159,453.23!! $20 a month still earns $15,945.32!
It's incredible to me. With social security likely to be non-existent in 30 years - not taking advantage of 401(k), IRA, or personal investment accounts is just stupid. I realize times are tough and some people struggle to find an extra $20 a month - however, if your life was on the line, would you be able to give up that iPhone? I'd like to think so.
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