The Rainy Day Dime
The rainy day dime isn’t a fancy theory that just got invented by a financial guru. It has been with us ever since humans figured out they must save for their retirement.
While that may be the case, I bet you never heard of the rainy day dime. That’s because it is a twist on one of my mother’s oft repeated pieces of advice. She would always tell me to save something for a rainy day.
She was telling me that some day I would be old. And trying to help me understand that if I didn’t have any money saved I’d regret it.The saving part in this process is painful for far too many of us.
And it turns out she was right. I needed to put money away for my stretch in the old age cycle of life or I’ll be SOL.
She was also big on acronyms.
Therefore, a catchy term first of all gets attention. Attention usually results in reading about it. Reading about it usually results in action taken.
Unfortunately for me I didn’t heed her advice until I turned 40. So apparently I was a slow learner. Boiled down to its most basic property the rainy day dime is me and you saving ten percent of every dollar we make.
That’s it. End of story. Unless of course you want to learn what is the secret sauce underpinning your dime.
Like all good programs secret sauce must be an ingredient, or why do it? And, it is the secret sauce that turns the rainy day dime into a huge rain barrel of dollars. And above all else, that’s a really good thing.
A Rainy Dime is How Secret Sauce is Made?
The financial experts tell us to start at an as early as possible age. And not to wait until we are 40 or 50 or later. So, this article is an attempt to spur you into saving something at an early as possible age. If you are 20, start now. For example, if you are 30 you should have a ten year savings track record by now. And if you are 40 you should have a 20 year track record.
And no, I won’t keep going up by ten year increments. I’m sure you get the picture. Besides you can do that in your own mind without any help from me.
The title of this article is, “The Rainy Day Dime”.
All you’ve heard about so far is the rainy day. Where’s the dime, right?
The dime actually refers to the number 10 as expressed as a percentage as in 10%. That may be cute but at the same time it is also dead serious. Take a minute to think about it.
For example, say you put away a dime from every dollar you earned each and every month. To make the math easy let’s say you earned $2000 a month. If you multiply $2000 by 10% it means you put away $200 every month.
Let’s say that $200 never earned a penny in interest and you started when you were 20. Quick math tells me you’d have $108000 in your savings account at the age of 65. Now imagine that number. Moreover, can you visualize that number?
You didn’t do a darned thing except save and it grew like the weeds in your garden. Because most of us want to have a bigger nest egg we do not place our money in non-interest bearing accounts. Why would we do something as dumb as putting money in non-interest bearing accounts, correct?
Therefore, we make an attempt to find the best interest bearing account for our money.
This article isn’t meant to zero in on any particular account. It is meant to add the magic sauce to the already magic rainy day dime.
So, Compound Interest Makes Secret Sauce?
That sauce is called compound interest. If you do not know what compound interest is go to your favorite search engine and perform a bit of research. It is truly The 8th Wonder of The World.
Compounding happens on an annual basis with most savings accounts. Mathematically speaking if you place $1000 into your account and it is paying 8% at the end of the year your account balance will be $1080 ($1000 X 8% = $80. $1000+ $80 = $1080).
In the second year and beyond the compounding factor, in this case the interest rate, is applied against the balance. It looks like this: $1080 X 8% = $86.40. The $86.40 is added to the $1080 giving you a new balance of$1166.40. This happens year after year after year.
I’ll let you do the math for the next 43 years in this scenario. Or, use one of the compounding formulas on the Internet. Either way you will experience what is commonly called the WOW factor.
Some Final Thoughts
You know, when you see the balance at the end of the 45 year time period you say, or shout, WOW! Of course not all of us have a time line of 45 years. If you start when you are 40, you only have 25 years.
This means you have to increase your deposit amount from a dime to thirty or forty cents in order to enjoy the WOW factor. Regardless, you can still call that amount your rainy day dime.
So, get out there and start saving for retirement. Or at least a rainy day.
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