Women: a girl needs cash

Are you thinking: how much money will I need to have invested to get to a point in my life where I will no longer have to work, and maybe I work just because I choose to? Imagine, you wake up each morning knowing that you have completely designed your day and that your financial needs are being handled. Will you want to change your lifestyle in a few years?

Let’s say you are now forty years old. You are single with an annual income of $ 35,000. His closet has clothes that he loves, he goes out to eat every now and then, he goes to the movies on weekends, he goes to concerts every now and then and he enjoys a vacation away from home once a year. Or maybe you are married and have a combined income of $ 60,000. You and your husband go to a country house on the weekends, drive two cars, play tennis and golf, entertain your friends, and travel every year.

Now, how much cash will you need to continue that lifestyle once you stop working? The temptation is to say “a lot.” But how much is a lot? And where is it going to come from? There is an old saying about how you get wealth: you can marry it, inherit it, or earn it. (You can of course steal it too, but stealing rarely works in the long run, and we’re going to keep things honest here.) Let’s say the only wealth you have and are likely to have is what you earn. And with his salary of $ 60,000, he spends about $ 4,000 a month on mortgage or rent payments, car payments, clothing, food, entertainment, and credit cards. To maintain this lifestyle, you will need to have invested $ 600,000 when you stop working so that, at a (fairly typical) 10 percent rate of return, you and your husband can continue to receive the same income as you do now. $ 60,000 a year.

Similarly, with an annual income of $ 35,000, you will need to have invested $ 350,000 by the time you stop working in order to maintain your lifestyle.

Basically, then, you can add another zero to what you currently earn to determine a ballpark figure of how much you will need to have by the time you stop working in order to maintain your current cash flow.

Of course, inflation changes that canvas. You won’t know what the inflation rate will be by the time you decide to stop working, but inflation has been running at an average rate of 3 percent per year for the past decade. A moderate rate of inflation, like the one we’ve experienced over the past decade, will increase the amount of savings you’ll need to a greater or lesser extent, depending on how far into the future you plan to live off the cash flow of your investments.

Now that $ 600,000 we just discussed may seem like a lot of money. But let me tell you about a gem for your financial treasure chest. This second gem is called the “Rule of 72.” It is a simple mathematical calculation to help you understand the growth of your money. Is that how it works. Take whatever rate of return you hope to earn and divide the number 72 by it to determine how many years it will take for your money to double at that rate.

For example, let’s say the rate of return you use is 12 percent, like an average rate of return in the stock market. Divide 72 by 12. This equals 6. That means it will take seven and a half years for our money to double at that rate. Why use the stock market? Because it’s the fastest, most proven way to double your money. In 1995, a banner year for the stock market, the market gave investors 36 percent returns, which means that at that rate, if you were to get this return on the stock market, your money would double in two years. A savings account at a bank currently averages 3 percent, and therefore it would take twenty-four years for your money to double. Behind the Rule of 72, then, is the principle that a fair rate of return makes a significant difference in the growth of your money.

According to the Rule of 72, if you are forty years old, the money you have invested now at an expected growth rate of 12 percent can double four times by the time you reach sixty-four. So if you’ve already invested, say, $ 40,000, it can double four times to $ 640,000 in twenty-four years. (It would increase to $ 80,000 at age 46, to $ 160,000 at age fifty-two, to $ 320,000 at age fifty-eight, and $ 640,000 at age sixty-four.) working for you, your money grows naturally so that it can reach the $ 600,000 we talked about.

The Rule of 72 is a useful tool for forecasting the growth of your money and determining its future potential for you. And it exemplifies the power that money can have for women. Who would want to miss out on putting this resource to work in their life?

Voila! By adding a zero to your current income, you will determine how much money you want to save, and by saving dollars in an investment account, and by monitoring the growth of this money annually, you can determine how fast a girl will be with money in cash and financial freedom that you can create for yourself.