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9 Financial Concepts Every Functioning Adult Should Know
As a functioning adult with sarcastic tendencies, I just had to click on the link. It did not disappoint! I could go on and on about how useful this article was to me, but let's just dwell on one thing in particular.
Here's an example: If you start off with $100 earning 7% interest annually, after your first year you'll have $107. The next year, you'll be earning 7% interest on $107 and not $100 (you'll earn $7.49 instead of $7).
Start off with $100 earning 7% interest annually? That's the example? What is this? 1990? What a great year! Can't you just picture the wealth rapidly snowballing? It's a cold slope. There's plenty of snow! The snowball just gets bigger and bigger as it rolls downhill! The wealth rapidly snowballs! Woohoo!
It doesn't sound so impressive when we're discussing $7 at a time, but compound interest is the concept that powers the exponential growth of retirement savings. As Business Insider's Sam Ro puts it, "It's the deceivingly simple force that causes wealth to rapidly snowball."
Yes! That's what I'm talking about!! Exponential growth and wealth that's rapidly snowballing! Bravo!
Now let's start off with $100 earning 0.2% interest annually. The year is 2010. What a great year! It's a hot slope though. Hey, look! A camel! Thanks to inflation, the snowball just gets smaller and smaller as it rolls downhill! The wealth rapidly snowballs into nothing! Exponential decay! It's deceivingly simple really. I'm kind of surprised so few functioning adults actually need to be told. Then again, it never hurts to point out the risks. Exponential decay is associated with harmful radiation. Keep it away from snowballs and human retinas!
Of course, there are other things to keep away from human retinas. I'm not going to try to stop you from reading about the 9 financial concepts every functioning adult should know though. I think the thing that intrigued me most was that there wasn't a tenth thing. That's really thinking outside the box.
5 comments:
7%? Seems kind of light!
In all seriousness, I remember watching Buffett on CNBC during the financial crisis. He stated that cash was the worst investment. I couldn't believe my ears!
Good grief, we had just seen AAA rated mortgage investments lose 99% if their value. The stock market was tanking, banks and insurers were failing .... Washington Mutual depositors learned about the FDIC limit....I could go on and on.....
And all this just a few years after the dot com crash when internet and tech stocks lost 90% to 100% of their "value".
Overpriced "assets" are the worst investments! Far worse than cash.
If cash is yielding negative 1% then one might be better served saving 11% of income rather than 10% . Seems like a saner path than investing in bubbles or worse - FRAUD!
The Fed may have pumped up asset values, but it will come with a cost imo. How are today's young workers going to achieve a reasonable rate of return from these levels?
mab,
If cash is yielding negative 1% then one might be better served saving 11% of income rather than 10% . Seems like a saner path than investing in bubbles or worse - FRAUD!
Indeed! Once I noticed that real interest rates were falling and had been doing so for decades, eating in restaurants came to nearly a dead stop. I suppose I could have swung for the fences instead on Sears stock instead, but that's not my style! ;)'
How are today's young workers going to achieve a reasonable rate of return from these levels?
They will sell their Ferraris as a backup plan!
My grammar is telling me that I sleep deprived yet again (as if the rising sun wasn't enough). I really should be heading off to sleep.
Probably only needed one "instead" in a given sentence. ;)
My grammar is telling me that I sleep deprived yet again
I can almost read you loud and clear! And you may be sleep deprived, but at least the blog isn't post deprived!
Once I noticed that real interest rates were falling and had been doing so for decades, eating in restaurants came to nearly a dead stop.
Most never notice and keep binging ahead until they're cut off. More and more people are hitting the wall. Absent some serious Gov't deficit spending, I just don't see how this extend and pretend borrow and spend game can keep going.
Time will tell.
mab,
And you may be sleep deprived, but at least the blog isn't post deprived!
This economy is like a kid in a candy mountain store!
There are way too many delicious parabolas!
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