Women - Money and the Power of the Rule of 72
The Rule of 72 is a handy tool for forecasting the growth of your money and determining its future potential for you. And it exemplifies the power money can have for women. Who would want to miss the opportunity to put this resource to work in her life?
It's a simple mathematical calculation to help you understand how your money grows. Here's how it works. Take whatever rate of return you expect to earn, and divide the number 72 by it to determine how many years it will take for your money to double at that rate.
Let's take a look at Linette Atwood, my New York marketing friend who's struggling with a divorce, and find out how she finally used the principles of good money growth. Linette and I met for lunch one day while I was in New York on business. I hadn't seen her for a while. Her divorce was proceeding, and her lawyer had sorted through some of the financial muck that had so clouded her perceptions months before. In her professional guise, Linette looked much more in control, self assured, and competent. You would never have guessed that this woman hadn't been in charge of her own financial life all along. Over lunch, Linette told me that a "little voice" had been nudging her for a while to do something, but she'd been ignoring it. She told me, "You know, Joan, I'm working on an account for a woman's magazine right now. I just might talk to the editor about doing a column about the illusions women create about their financial lives. Maybe that will get more people talking about it," Linette said. "I never talked about my money to anyone, ever. Frankly, with my friends, the subject never came up. But now that I'm in a crisis, it's on my mind all the time and I feel a little freer about opening up to the people closest to me."
Linette told me a little more about her life. She originally had gone to work so that she could have spending power, and she looked great in the latest fashions. But she hadn't moved on to the next priority-long-term financial growth. Now, with her life turned upside down by divorce, she needed to get her house in order. In particular, she needed to start saving and investing so that her daughter would be able to attend college in a few years. Linette had stopped at a certain point in her maturity-taking control of your financial life is a maturation process. Her spending was not necessarily in line with her long-term financial objectives. How many clothes and stuff do we really need? Linette is seeing that, like some women, she's devoted herself to beautifying her body and her home without nurturing her soul and financial well-being. The outside looks like a million bucks; the inside is a house of cards. Developing a financial life, however, is about a state of mind. Being financially solvent isn't just about having money, but about having the temperament for managing your money too.
"You do have options, Linette," I volunteered. "Such as?" "You can keep your present job, make the same salary, and dramatically cut your expenses, or you can creatively add to your income-either way, you'll increase your bottom line," I said. I showed her the Earnings Outlook chart below. This chart shows, based on what she earns today, how much money goes through her hands.
E A R N I N G S O U T L O O K
"I'll leave you with this thought: When you were married, you spent more than $10,000 a year on clothes, jewelry, vacations, and extras for your daughter, Kimberly, right?" Linette nodded. "Well, if you cut out most of that and save $7,500 to invest each year, you can grow that money so that you'll have an annual income of $100,000-less taxes and inflation adjustments-by the time you're age sixty-five. Just remember that little 'jewel' I'm always talking about: Spend less than you earn, invest the difference, then reinvest the returns." And understand how the Rule of 72 dramatically grows your pot of money so you can gain financial freedom.
Linette promised to give some thought to what I had said. If she takes control of her financial life by spending less each year and investing the difference, she will be able to live comfortably in the twenty-first century. She will enhance her life by approaching it this way. It's all a matter of learning how to selectively spend money. By reevaluating her priorities, she can set new goals for her money and be more self-assured in terms of how she spends. By engaging in her financial life, she will give herself breathing room to work on her family problems and to bring the spiritual and mental parts of her life into balance, too. She'll have peace of mind, knowing that she and her daughter will be in good shape for life. The ability of invested money to grow over and over again is the key to achieving this goal.
Are you convinced that making your money work for you, starting today, can make all the difference in your future? If so, it's time to take a closer look at your wealth-building options. By determining the rate of interest that your money is gaining, and dividing this number into the number 72 -- you can determine how fast your money will double to your financial goals. Begin by evaluating your IRA, 401(K) or other invested monies and see what they are doing for you -- and where they will take you in the future. Because, this is all about you, your comfort, and your well-being.
Joan Perry President/CEO of Take Charge Financial! Joan's Blog and http://www.takechargefinancial.com
This article is an exerpt from Joan's book, "A Girl Needs Cash". It is an article to pass on to your girlfriends and younger women, to enable their financial well-being as well. Please see Joan's Blog to send a comment about this article.
Joan Perry has developed her expertise over twenty-five years, beginning as an Investment Banker working on Wall Street and continuing as a Money Manager and Owner of a Securities Brokerage Firm. As President of Take Charge Financial!", Joan initially founded one of the first female-owned Municipal Investment Banking firms in the United States known as Perry Investments Inc. in 1985, which then began retail and brokerage services to individuals in the mid-90s. She has in-depth trading and market experience from managing institutional and retail investment dollars in the securities markets, and throughout her career has managed billions of dollars in the bond, stock and options markets. Joan combined her personal and professional background in her book A GIRL NEEDS CASHİ published by Random House in 2000 - a story of money in women's lives and the transition to taking charge of it. She received her MBA from Vanderbilt Owen Graduate School of Management and undergraduate degree from Denison University. She was the founding President of the Los Gatos Morning Rotary Club and currently the Co-Chair of the Los Gatos, CA 'Jazz on the Plazz' Summer Concert Series.
Share your comments and questions with us at Joan's Blog -- and see us on the web at http://www.takechargefinancial.com