Do it yourself math for those tricky questions…
1. How many years will it take to double my money? (the rule of 72)
The math: divide the number 72 by your annual investment return. (example) if your are making 8%, you’ll double your stake in 9 years.
2. What am I giving up in retirement savings when I spend money today?
The math: add a zero to the price tag. That’s what you’d have in 30 years if you invested the money and earned 8% a year. (example) so a $40,000.00 car trims your nest egg by $400,000.00.
3. How much do I need to earn, before taxes, to buy what I want?
The math: multiply the cost by 1.4 (that assumes a 28% federal rate.) To pay for a $10,000.00 item for your home, you must earn $14,000.00
4. Does my fund manager do well enough to justify his/her fees?
The math: multiply your fund expense ratio by 10. The result is the percentage by which it needs to outperform a low – cost index fund to cover the extra fees. (example) a fund with an expense ratio of 1.5%, needs to do 15% better than the index.
5. What am I worth by the hour?
The math: divide your annual pay in half, drop the last three zeros. (example) if you make $100,000.00 a year you make $50 an hour. (based upon a 40 – hour week).