“Robert Reich, once observed ‘most minimum wage workers aren’t
poor.’ He is right.” - Johny Isakson, U.S Senator (Robert Reich is
former U.S department of Labor Secretary)
Minimum wage earners keep complaining about their salary. They say
they cannot retire rich. Most of them just go through their work and
retire relying only on their small SSS pension and the little
retirement that their company will be giving them.
For most minimum wage earners, becoming a millionaire when they
retire is quite an impossible dream. They contend that they can only
be a millionaire if they receive a hefty sum of retirement money
from their company.
Is it really possible to achieve millionaire status by your own
efforts alone ? (Humanly speaking) Let us consider this actually
scenario.
In the Philippines, Central Visayas Region, the current minimum wage
is P 241.00. Multiply it by 26 days of work you get P 6,266.00.
Let’s just say that you are 30 years old and you faithfully saved
that P 266.00 per month and spent the rest of the P 6,000.00, that
would amount to P 3,192.00 per year
Do the math. If you put that P 3,192.00 in an investment vehicle
that would give you 10 % interest per month in interest
(compounded), do you know how much your money would become in 30
years, that would be P 1,052,001.00. If you started this kind of
savings program when you were 30 years old you will retire a
millionaire at 60 years old by your own savings program alone, add
to that the retirement benefits from your company, your monthly
pension from the SSS and your PAGIBIG “savings.”
What if you decided to add another P 500.00 in your monthly
investment and invest P 766.00 instead? This would amount to P
9,192.00 per year and at the end of 30 years it would amount to a
whopping amount of P 3,029,447.00 (At 10 % interest per year
compounded)
Perhaps later on you would increase your savings to P 1,766.00 a
month if you receive a salary increase. If you do that even on the
10th year after you start saving only P 266.00 a month, you will
retire with P 4,472,777.00.
The growth of your money is possible because of what we know in the
world of finance as the Rule of 72.
Albert Einstein’s greatest discovery was not the theory of
relativity, it was the Rule of 72. (Although some people say that
the rule existed long before he was born, most would agree however
that he has popularized it)
What has the Rule of 72 have to do with investing and growing your
money ?
Basically knowledge of the Rule of 72 is the basic building block of
learning that each budding investor should have.
Simply stated the Rule of 72 helps you determine the following:
1.) What interest rate you should avail of in order for your money
to double quickly.
2.) How many years does it take for your money to double.
In a nutshell the Rule of 72 is stated as follows:
72 divided by interest rate return = No. of years it takes for your
money to double.
So, if you put P 100,000.00 in a bank account, it will take 72 years
for your money to become P 200,000.00 since the bank only offers a 1
% percent interest rate. (72 divided 1 = 72)
Let’s say you get a little wise and you put your P 100,000.00 in a
time deposit account it will take 18 years in order for your money
to become P 200,000.00 (72 divided by 4 = 18)
Basically the higher the interest rate the less number of years your
money will it take for your money to double.
So if you put your P 100,000.00 in an instrument that would give you
a 12 % interest rate it will only take 6 years for your money to
double (72 divided by 12 = 6)
However take note that the Rule of 72 is more accurate with lower
interest, the higher the interest rate rises the more inaccurate it
becomes. (An example of this is that if you earn have P 100.00 an
invest it in an instrument at 72 % interest rate per year according
to the Rule of 72 your money will become P 200.00 in 1 year. However
this is not entirely accurate since you will need a 100 % interest
rate in order for it to become P 200.00 in 1 year time)
Interested in how many years would it take for your money to TRIPLE
and what should be the interest rate that you should avail of? then
you should use the Rule of 115. It works basically the same way as
the Rule of 72, just substitute 72 with 115.
Earning the minimum wage ? No problem with the Rule of 72, You could
be a millionaire !
Author Bio
Zigfred Diaz is a Registered financial & Real estate broker. He is
also a practicing lawyer & a law professor. Recently he has involved
himself with internet marketing.
Finances
