Money Tips » Money Magic

Would an extra £150 a month for doing nothing be of use to you? You like that idea?Ok, here comes something radical to bend your mind around. Ready? Here we go.

It's like this. Ok, so say you want to go on holiday next summer and it'll cost £500 because it's going to be somewhere really special? Most people wait until next June and then realize they've not got a penny – but not you – you're smart. So with that goal in mind, from the autumn you put away £50 a month for 10 months. You think that mounts up to £500. But you're deliciously wrong – because of the added interest your bank: if you've cleverly stuck it in an 8% high  interest account, then the bank will give you an extra £18 to buy cocktails with! They've paid you £18 for the privilege of using your £500.  Joyfully you come back from holiday not just tanned and relaxed, but free of debt too.

Alternatively  you could be a big fat dumbass, stick the £500 holiday costs on your credit card which takes 10 months to pay off afterwards at 20% costing you a total £75 extra whack, which you've paid through the nose for the privilege of the credit company letting you rent their money. ( Of course if you're really Mr or Miss Stupid from Stupidsville you pay off the credit card at the minimum 5% per month in which case it takes you 15 YEARS to pay off the holiday, at a much greater total cost….) You get the general idea. Money grows more money – your £500 becomes £518 without you doing zilch. That's exactly the way compound interest works, and the sooner and younger you start, the better.

Compound interest works with smaller figures, of course, but for the purposes of explaining this, let's start with a nice, fat, juicy £5,000.

1.  You stick your £5k in a high interest savings account that pays 5.8% interest. And then you leave it. You may wanna touch it, pull it out, play with it and spend it, but you don't. You leave it there to grow like a mushroom in the dark, or nice beer slowly fermenting. It earns interest. And then you leave it a bit more and you earn interest on the interest (as well as the original figure). And so on:

2) This is how it grows:
After one year………….it's turned into £5,300
After two years………...that's then turned into £5,600
After three years………that's become a cool £6,000
After four years………..it's grown into £6,350
And after five years……it's become £6,750
That's an extra £1,750 smackeroonies – for doing absolutely nothing! No work! No sweat! No grovelling! Zip, zero, nada. And if you leave it for 10 years….you've virtually doubled it at £9,100!

Now, that calculation's based on you just stuffing your £5k in the bank and not touching it or adding it to it. But no. that's not enough for you. With the extra £50 a month you've learned how to save through your Get Out Of Debt Strategy, you decide to add an extra £50 a month to your Growth Fund. That gets you a total £10,000 after five years! An extra £5,000! For nothing!
So next let's look at your money and how you can generate yourself a little Investment Fund to start off with. And check out the Get Out Of Debt Strategy and the Close the Gap bit  – if you get this licked and get to Zeronaire status, sorting out your Investment Fund will come a whole lot easier – you'll be in the habit already and can transform your Debt Busting Weapon into a Get Rich Quick tool instead…