Month: May 2011

FEATURE ARTICLE:  How long will it take to double your money?

Before making any investment decision, one of the key elements you face is working out the real rate of return on your investment.

Compound interest is critical to investment growth. Whether your financial portfolio consists solely of a deposit account at your local bank or a series of highly leveraged investments, your rate of return is dramatically improved by the compounding factor.

With simple interest, interest is paid just on the principal. With compound interest, the return that you receive on your initial investment is automatically reinvested. In other words, you receive interest on the interest.

But just how quickly does your money grow? The easiest way to work that out is by using what’s known as the “Rule of 72.”¹ Quite simply, the “Rule of 72” enables you to determine how long it will take for the money you’ve invested on a compound interest basis to double. You divide 72 by the interest rate to get the answer.

For example, if you invest $10,000 at 10 percent compound interest, then the “Rule of 72” states that in 7.2 years you will have $20,000. You divide 72 by 10 percent to get the time it takes for your money to double. The “Rule of 72” is a rule of thumb that gives approximate results. It is most accurate for hypothetical rates between 5 and 20 percent.

While compound interest is a great ally to an investor, inflation is one of the greatest enemies. The “Rule of 72” can also highlight the damage that inflation can do to your money.

Let’s say you decide not to invest your $10,000 but hide it under your mattress instead. Assuming an inflation rate of 4.5 percent, in 16 years your $10,000 will have lost half of its value.

The real rate of return is the key to how quickly the value of your investment will grow. If you are receiving 10 percent interest on an investment but inflation is running at 4 percent, then your real rate of return is 6 percent. In such a scenario, it will take your money 12 years to double in value.

The “Rule of 72” is a quick and easy way to determine the value of compound interest over time. By taking the real rate of return into consideration (nominal interest less inflation), you can see how soon a particular investment will double the value of your money.

1 The Rule of 72 is a mathematical concept, and the hypothetical return illustrated is not representative of a specific investment. Also note that the principal and yield of securities will fluctuate with changes in market conditions so that the shares, when sold, may be worth more or less than their original cost.The Rule of 72 does not include adjustments for income or taxation. It assumes that interest is compounded annually.Actual results will vary. 

MONEY SAVING TIP:  Master the 30 day rule

Whenever you’re considering making an unnecessary purchase, wait thirty days and then ask yourself if you still want that item. Quite often, you’ll find that the urge to buy has passed and you’ll have saved yourself some money by simply waiting. If you want, you can even keep a “thirty day list” where you write down the item and the day you’ll reconsider it, but I prefer just to keep this one in my head – that way, I often just forget about the unimportant things.

DID YOU KNOW…you may not need collision insurance?

So you purchased an older model car. It’s only worth $2,500 and is seven or more years old. As your car depreciates, it gets closer and closer to your deductible. Remember that the insurance company won’t pay you any more than the value of your car, so if the value is the same or less than your deductible, you won’t get any money. If you’re driving an old car, consider not getting collision insurance. The minimum policy required by law is enough in your case. Don’t count on your insurance agent to tell you, though.

Yahoo.com

PORT ST. LUCIE – “Be frugal with your money,” “Don’t dig a hole of debt” and “There’s good credit cards and bad credit cards,” are all pieces of good financial advice.  What makes them even better is they came from high-school students.

The Allied Health Assisting students at St. Lucie West Centennial High School recently completed a financial literacy program that consisted of 12 modules throughout the school year.

Read more

FEATURE ARTICLE:  When to use a Credit Freeze or Credit Alert

One of the strongest protection tools available to a credit consumer today is a credit freeze.

Consumers have the ability to “freeze” their credit files which are provided by the 3 main credit bureaus, Equifax, Experian and TransUnion. Putting a freeze on your credit file prevents creditors, lenders and most of all, identity thieves from having access to your credit information. These files will stay frozen or locked until you  thaw or unlock them.

You can still use your credit cards but without access to your credit files, thieves cannot establish new credit in your name, even if they have obtained your identity elements such as your Social Security number and date of birth. Consequently, you will not be able to secure new credit unless you remove the freeze from your credit file. You can temporarily “thaw” your credit file any time you want and allow authorized parties to access your credit report when you are applying for new credit. You can reactivate the freeze after receiving your new credit and lock up your credit again.

Freeze vs. Alert

It is important not to confuse a credit freeze with a fraud alert, which tells new creditors that you may have been a victim of fraud in the past and asks them to take additional verification steps before issuing credit. Problem is these additional steps may include asking social security numbers or birthdates which the thief may already have. Fraud alerts will also remove your name form prescreened offers for credit and insurance, while a credit freeze does not. To get the most security for your credit file, a credit freeze is the best alternative.

What does it cost to freeze your account?

All three of the major credit bureaus adopted rules to allow credit freezes naturally for a small fee. Below we are including a table of fees for the State of Florida, but these fees vary from State to State. Important to note that Florida law requires credit bureaus to provide credit freezes at no charge to anyone over 65 and victims of identity theft.

Keep these points in mind regarding a credit freeze:

• You must freeze your credit report at each credit bureau
• A freeze must be made via the company website or in writing. If in writing we suggest you use registered mail with a return receipt.
• It usually takes at least three days for you to “thaw” your credit file.
  

MONEY SAVING TIP: Connect your entertainment center and/or computer setup to a true smart power strip.

A device like the SmartStrip LCG4 basically cuts power to all devices on the strip depending on the status of the first item on the strip. So, if you have your workstation hooked up to this, every time you power down your workstation, your monitor powers down, your printer powers down, your scanner powers down, and so on. You can do the same thing with your entertainment console – when you turn off the television, the cable/satellite box also goes off, as does the video game console, the VCR, the DVD player, and so on. This can save you a lot of electricity and significantly trim your power bill.

DID YOU KNOW…Your credit card can be skimmed? It’s so easy.

The result of a criminal investigation in Florida should service as a cautionary tale about how easy it is to skim credit and debit cards.