Canadian Personal Finance Blog

Archive for January, 2007

This is a rewording of a previous posting on July 21st 2005. OK, so maybe I will concede that Einstein may have stated that this was important, but I am still not convinced he “invented” it, but be that as it may.

If you click on the graph on the right you will find a gif that will show you a graph to show you the rule of 72 at work. Assuming your saving a set amount of money with only 1 compounding period per year, this graph is fairly accurate.

The other thing to remember is this is a DOUBLING period, and the more of those the better. Why? Remember if you find an investment that grows say by 10% a year (over year), your money doubles in 7 years (approximately), so in 21 years (approximately) your money will be 8 times what it is today! (remember 2 * 2 * 2 == 8). This is why it is so crucial to find good growth in your investments.

HOWEVER, risk is another thing to take into consideration too, and we’ll talk about that soon as well.

Double, double, double!!! –C8j

Einstein Finance

This is a repeat, but a good article Einstein Finance , hope you enjoy…

No, it is not E=MC^2, look at the mess that one has gotten us into.

I have read a bunch of places that Einstein was the first to quote the rule of 72. What is the rule of 72? OK, this one is really important for compound interest or growth, so pay particular attention to this one. If you have an investment M it and it is growing at a rate of G (compounded yearly) if you divide G into 72, that is how long it will take M to DOUBLE in value.

Some examples:

• I buy a bond at 4% interest yearly growth (compounded), it will take 18 years for this bond to DOUBLE in value (i.e. 72 / 4 = 18 )
• I buy a bond at 2% interest and it will take 36 years for this to double in value.
• I leave my money in my bank account that pays 1% interest, it will take 72 years for it to double in value!

I don’t think I completely buy that Einstein thought this up, given that I have a math degree and this is just straight math, but let’s just say Einstein did say this, for now.

Find things that grow annually by 10% and your money will double every 7 years, which is really a good thing! Einstein Finance, a new term!

–C8j

I did a few articles a while ago, and I will be pointing to them along the way, but what the heck did the man who gave us the Nuclear age (well one of the men then) have to do with Finance? Well let’s first look at one of my favorite quotes from old “wacky hair”:

Insanity: doing the same thing over and over again and expecting different results.

Albert Einstein,

Now what, you may well ask, does this have to do with financial planning, retirement planning, debt reduction, or any other financial art that I comment on? Everything!

How many times do you keep doing the same thing every month and hope that somehow your financial future changes? Have you changed anything at all? Then why do you expect different results?

• If you make the same payments on your mortgage and the interest rate does not change, it would be insane to think it would get paid off any faster.
• If you continue to use your credit cards and only pay the minimum payment every month, it would be foolish to think you would ever be able to pay them off.
• If you continue to spend more than you make, how are you going to ever pay anything off?

Einstein may not have been speaking specifically about finances with this statement, but it is very applicable folks, remember he is the father of Einstein Finance .

My post about credit cards made it into the Carnival of Credit Cards posted on Credit Card Low Down, go have a peak.

Yup, that happy time in the Christian calendar when we can choose to change ourselves for the better. We can remove something we know we shouldn’t be doing, remove something we like doing to show we can live without it, or we can ADD something too.

This is another great time financially to think about adding something to your financial plans or financial “game” as it were. Maybe you don’t live with a budget, maybe it’s time you did? Maybe you are spending $15.00 a day on coffee, maybe it’s time to try to live without it (at least for Lent)?

Plan now, because Lent is coming. –C8j

The Ontario government puts it’s hands in my pocket yet again. Every two years I must have my cars tested to make sure that they run in a clean fashion. Wonderful, fantastic, pass the granola I love clean air (what is the font for sarcasm). My van which is barely 5 years old has been tested TWICE already (at a cost of $80 total), how a new van’s emissions can get that far out of whack, I don’t know, but I have dutifully had to test it.

My Honda has been tested 3 times now since I bought it 3 years ago. The first set of tests took a few tries to pass, the second test it passed no problem, and today it failed. I am again going to have to go to my mechanic to get him to do whatever magic he needs to do to get my car to pass.

So what is my beef with this whole system? Well, the fact that I must subsidize the clean air is one thing (if it is so darn important to the government, maybe they should either give me a tax break on the test, or pay for it themselves and then FINE anyone who fails it). Making people pay to find out their car is working fine seems a little wrong to me. If we need clean air (which I agree we should have), then lets make this universal and easily obtainable for everyone. Who is this test penalizing? Folks who lease or get new cars every 4 years? Nope, their cars will pass no problem, this is penalizing folks who keep their cars a long time, because they can’t afford (or in my case are too cheap) to buy new ones. Seems to be yet another tax on the working poor, but then again, that is only my opinion. Do I want to see smoke belching “beaters” out there? No, but there has got to be a better system possible.