One of the reasons that so many people are living hand to mouth is because they don’t understand compound interest. However if you are going to be a survivalist either in terms of buying and stockpiling for a disaster or just wanting to survive an economic disaster than understanding this type of finance can make a big difference in the quality of your life after a disaster.
Just as with short term saving, there are important things to consider in your long term savings plans. For example, the longer you have for saving up, the less money you need to allocate each month toward your goal.
Let’s look at an example of the effect of in-terest over the long term. If you start a retirement plan when you’re 25, and put in $100 per month for 40 years, here are your results at an 8% interest rate:
Total amount saved: $353,855.46
Total principle: $48,000 ($100/month for 40 years)
Total interest earned: $305,855.46
Compare the two figures above. It shows show you the power of compound interest. Over $305,000 of your savings is from interest alone! As your sav-ings grow, you’re getting paid interest on the interest you already received.
So it’s in your best interest to take advantage of all the interest you can and start as early as possible on your long term savings.
If you don’t understand the above calculations then that’s where personal financial planning software or budgeting and forecasting software can come in handy.
Seek security plus a higher interest rate. Browse around and find which bank has the highest interest rate. Online banks tend to have higher interest rates for savings accounts, but do your research and see which one pays the best rates.
Many investment products pay more interest than a savings account at your bank. Look into using mutual funds, exchange-traded funds, and other investments to increase your rate of return. However, as the interest rate grows, so does the risk.
As you deposit more money and the balance grows, so too will the amount that the bank will pay you in interest. A difference of even 1% can have a big effect on your total savings.
Of course if you see a disaster looming that is financial you might start needing to cash these types of savings in and start stuffing dollar bills under your mattress. Banks should be used as your savings tool because as you know they have collapsed before and cost people thousands of dollars.