Latest news with #compoundinterest
Yahoo
25-05-2025
- Business
- Yahoo
What To Do with a Salary Bump: Invest, Save, or Spend?
If you've recently received a salary bump, congratulations! An increasing salary is one of the keys to long-term financial success. But what you do with that extra income plays an important role as well. Read More: Find Out: You have three basic choices on how you can use any extra money in your paycheck: invest it, save it, or spend it. Here's a breakdown of the pros and cons of investing, saving or spending your salary increase. Investing means using money to buy an asset in the anticipation that it will generate income and/or an increase in value over time. If you're looking to build wealth, investing is your best option. The S&P 500 stock market index, for example, has a long-term average return of about 10% per year. Thanks to the power of compound interest, that's enough to double your money every seven years or so. One trick many financial advisors recommend for building long-term wealth is to invest any 'found' money. This includes any type of money that's not part of your monthly budget. Typical examples include tax refunds and bonus checks, but salary increases qualify as well. Since you were already (hopefully) spending less than you earn, it means that you should be able to get by without spending the salary increase. If you're looking to boost your long-term nest egg, investing is the best choice. Savings accounts can't keep up with the return of the stock market, and spending subtracts from wealth, rather than building it. Try This: Boosts long-term wealth without having to go 'out of pocket' Multiplies the value of the salary increase thanks to compound interest Prevents cash from being spent Can diminish the feeling of accomplishment since the money 'goes away' Requires patience to ultimately receive the reward of a higher net worth While long-term investing can net the highest returns, sometimes the best place to put a salary increase is in a savings account. When your money is in a savings account, it's instantly accessible via a debit and/or ATM card, giving peace of mind in case you have any financial emergencies. It's also federally insured by the FDIC for up to $250,000. Thanks to the explosive growth in online, high-yield savings accounts, you can likely find plenty of suitable options for your money. Most competitors in the space offer insured accounts with no fees or minimums that pay 10x or more in interest as traditional brick-and-mortar bank accounts. Protects against falling into debt Can be used as a foundation for short- or mid-term goals, such as a home down payment Provides Liquid access to cash, if needed Can earn decent rates of return for an insured account Can't compete with the returns of riskier assets like stocks and bonds Interest is fully taxable Rates are variable The final option is to spend the extra money that you're earning. While this isn't a good choice if you're looking to build long-term wealth or preserve your capital, there are some scenarios in which it can make sense. If you're 'spending' the money to pay down high-rate credit card debt, for example, that can be a smart move. There's also a case to be made for catching up on important expenses you have been delaying, such as driving a safe vehicle or maintaining your home properly. But if you're just planning to blow the money on discretionary items, you're giving in to what experts call 'lifestyle creep,' in which you continue to spend your money as fast as you earn it, even when your income increases. Over the long run, that's the path to the poorhouse. Gives a feeling of satisfaction/reward for earning the money Can be used to buy items that are really needed, such as home repairs Makes it hard to get ahead in the long run Gets you in the habit of not saving or investing Traps you in the cycle of always spending more More From GOBankingRates 6 Hybrid Vehicles To Stay Away From in Retirement This article originally appeared on What To Do with a Salary Bump: Invest, Save, or Spend? Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
25-05-2025
- Business
- Yahoo
What To Do with a Salary Bump: Invest, Save, or Spend?
If you've recently received a salary bump, congratulations! An increasing salary is one of the keys to long-term financial success. But what you do with that extra income plays an important role as well. Read More: Find Out: You have three basic choices on how you can use any extra money in your paycheck: invest it, save it, or spend it. Here's a breakdown of the pros and cons of investing, saving or spending your salary increase. Investing means using money to buy an asset in the anticipation that it will generate income and/or an increase in value over time. If you're looking to build wealth, investing is your best option. The S&P 500 stock market index, for example, has a long-term average return of about 10% per year. Thanks to the power of compound interest, that's enough to double your money every seven years or so. One trick many financial advisors recommend for building long-term wealth is to invest any 'found' money. This includes any type of money that's not part of your monthly budget. Typical examples include tax refunds and bonus checks, but salary increases qualify as well. Since you were already (hopefully) spending less than you earn, it means that you should be able to get by without spending the salary increase. If you're looking to boost your long-term nest egg, investing is the best choice. Savings accounts can't keep up with the return of the stock market, and spending subtracts from wealth, rather than building it. Try This: Boosts long-term wealth without having to go 'out of pocket' Multiplies the value of the salary increase thanks to compound interest Prevents cash from being spent Can diminish the feeling of accomplishment since the money 'goes away' Requires patience to ultimately receive the reward of a higher net worth While long-term investing can net the highest returns, sometimes the best place to put a salary increase is in a savings account. When your money is in a savings account, it's instantly accessible via a debit and/or ATM card, giving peace of mind in case you have any financial emergencies. It's also federally insured by the FDIC for up to $250,000. Thanks to the explosive growth in online, high-yield savings accounts, you can likely find plenty of suitable options for your money. Most competitors in the space offer insured accounts with no fees or minimums that pay 10x or more in interest as traditional brick-and-mortar bank accounts. Protects against falling into debt Can be used as a foundation for short- or mid-term goals, such as a home down payment Provides Liquid access to cash, if needed Can earn decent rates of return for an insured account Can't compete with the returns of riskier assets like stocks and bonds Interest is fully taxable Rates are variable The final option is to spend the extra money that you're earning. While this isn't a good choice if you're looking to build long-term wealth or preserve your capital, there are some scenarios in which it can make sense. If you're 'spending' the money to pay down high-rate credit card debt, for example, that can be a smart move. There's also a case to be made for catching up on important expenses you have been delaying, such as driving a safe vehicle or maintaining your home properly. But if you're just planning to blow the money on discretionary items, you're giving in to what experts call 'lifestyle creep,' in which you continue to spend your money as fast as you earn it, even when your income increases. Over the long run, that's the path to the poorhouse. Gives a feeling of satisfaction/reward for earning the money Can be used to buy items that are really needed, such as home repairs Makes it hard to get ahead in the long run Gets you in the habit of not saving or investing Traps you in the cycle of always spending more More From GOBankingRates 6 Hybrid Vehicles To Stay Away From in Retirement This article originally appeared on What To Do with a Salary Bump: Invest, Save, or Spend? Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Daily Mail
17-05-2025
- Business
- Daily Mail
What would REALLY happen if you didn't buy a daily coffee and saved the money instead?
The price of a takeaway coffee has soared in recent years. Some towns, especially those in and around London, have already seen the price of a takeaway coffee nudge beyond £4 and experts say we're just three years away from the £5 cup of coffee becoming the norm. And in the past decade, it has been repeated time and time again: 'Stop buying coffees out and you might actually be able to save some money' - or better yet, it's the answer to saving for a house deposit... second only to ditching the avocados. Now, savings platform Flagstone has crunched the numbers to see if the debate stacks up. It says the average daily spend on a takeaway coffee is £3.40, amounting to £102 a month. This is based on buying a takeaway coffee every day (not just the regular working week). If the money was diverted each month into a savings account and compounded annually at an interest rate of 4.5 per cent, it could add up to nearly £7,000 over five years. Putting £102 a month into a savings account compounding annually at 4.5 per cent over five years would grow to £6,849. This assumes that each monthly deposit earns interest at 4.5 per cent annually for five-years. The magic of compound interest, branded the eight wonder of the world by Albert Einstein, is to partly to thank for this. Compounding is the addition, repeatedly, of interest to the principal amount of a deposit. It describes what happens when you earn interest on both the money you initially deposit in a savings account, plus the interest you have already earned on that starting amount. If the same tactic was adopted for money spent on regular nights out, it could prove even more lucrative when it comes to helping to build up a savings pot. The average person splashes out £317 on nights out a month, according to Flagstone, making it one of the biggest black holes in monthly finances. If this sum were redirected monthly into a savings account instead, it would grow to £21,285 over the five years. The second highest earnings opportunity could come from doing more housework yourself and putting the money you would have spent on a cleaner into a savings account. While having a cleaner can save time, spending on cleaners rose by 9.4 per cent last year, driven by increases to the national living wage. Currently, the average monthly cleaning cost is £150. If this money was saved instead - and compounded at 4.5 per cent interest - you could earn an extra £10,072 after five years. People spend around on £237 average a month on meal kits, meal deals and takeaways. Putting this money into a high-interest savings account instead would save £15,914 over five years in a 4.5 per cent savings account. While cancelling subscriptions Subscriptions to Disney +, Amazon Prime, Audible and Apple TV and funnelling what you would save from this into a high-interest account would save between £536 and £537, per subscription, over five years. The table below allows you to see the daily spend, monthly spend and finally, how much it would save you over five years. If you were to stop spending on all of the above, you could save £76,479, if you placed the savings into a savings account offering 4.5 per cent interest. This figure relies on saving across all categories above. This is well over the average deposit on a new home, which is now around £53,414 Savers can currently get easy-access accounts payng 4.75 per cent, but this is likely to fall over the next six months as the Bank of England base rate is prediced to fall. Claire Jones, head of strategic relationships and new dusiness at Flagstone said: 'Spending on common items like nights out and coffees might not seem to have a huge impact on your bank balance. 'But reducing outgoings and redirecting that money to high-interest savings accounts could prove lucrative for individuals keen to focus on their wealth goals.'
