(Stupid, stupid, stupid = ME)
STOP what you're doing RIGHT NOW and read this if you don't already know how to compute compounding interest or if you don't know what the 'Rule of 72' is.
I only just learned it and I am so devastated that I didn't somehow learn this until now.
I recently met with a Certified Financial Planner who is an endorsed local provider on the Dave Ramsey website.
(If you read my blogs, you know how obsessed I am with Dave Ramsey's baby steps and zero based budgeting.)
LOOOONG BEFORE I learned about Dave Ramsey and the proper way to handle money, I withdrew approximately $60,000 from my retirement accounts for a down payment on a house.
Some people are probably cringing right now. That's exactly the response my financial planner had.
At the time, it seemed like a reasonable decision. I thought, 'It's my money that I've saved!'... 10% penalty for taking it out early didn't seem like all that much and that's not including the 25% or so taxes they took out on top of that...
It left me with less than 40K!!! OUCH! But, I swallowed that gut wrenching feeling of losing more than $20,000 instantly and went on with my life.
And I was doing just fine....UNTIL NOW!
The financial planner taught me about a little something called the...
RULE OF 72:
The rule of 72 is a number that you use to figure out how much your money would be worth, through compounding interest, by the time you retire.
-First you need to know how much interest your money is making in any given account.
-My retirement accounts were making, on average, 8% interest a year.
-All you do is divide 72 by 8 (because of the 8%) and you get 9.
-9 is the number of years it would take for your money to DOUBLE.
-So in 9 years from the time I withdrew the $60,000, I would have had $120,000...9 years from that, I would have doubled my $120k to $240k!!!
-9 more years meant $420k and in 9 more years...by the time I would have been at retirement age, my $60k (without ever having deposited another cent) would have been $840,000!!!!!!
THAT, my friends, is compounding interest and the RULE OF 72!
(Photo Credit: Getty Images)
So, as you're going out to spend hundreds of dollars this weekend on booze and over-priced restaurant food, think about how much that $200 could REALLY become if you just saved it!
UGH, I'm still upset about my decision from years ago, but there's NOTHING I can do about it now except tell everyone I know what I wish I knew then!