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Laura Diaz

How I Lost $840,000

 
Posted May 2nd, 2014 @ 10:11am

(Stupid, stupid, stupid = ME)

STOP what you're doing RIGHT NOW and read this if you don't already know how to compute compounding interest or if you don't know what the 'Rule of 72' is.

I only just learned it and I am so devastated that I didn't somehow learn this until now.

I recently met with a Certified Financial Planner who is an endorsed local provider on the Dave Ramsey website.

(If you read my blogs, you know how obsessed I am with Dave Ramsey's baby steps and zero based budgeting.)

LOOOONG BEFORE I learned about Dave Ramsey and the proper way to handle money, I withdrew approximately $60,000 from my retirement accounts for a down payment on a house.

Some people are probably cringing right now.  That's exactly the response my financial planner had.

At the time, it seemed like a reasonable decision.  I thought, 'It's my money that I've saved!'... 10% penalty for taking it out early didn't seem like all that much and that's not including the 25% or so taxes they took out on top of that...

It left me with less than 40K!!!  OUCH!  But, I swallowed that gut wrenching feeling of losing more than $20,000 instantly and went on with my life.

And I was doing just fine....UNTIL NOW!

The financial planner taught me about a little something called the...

RULE OF 72:

The rule of 72 is a number that you use to figure out how much your money would be worth, through compounding interest, by the time you retire.

-First you need to know how much interest your money is making in any given account.

-My retirement accounts were making, on average, 8% interest a year.

-All you do is divide 72 by 8 (because of the 8%) and you get 9.

-9 is the number of years it would take for your money to DOUBLE.

-So in 9 years from the time I withdrew the $60,000, I would have had $120,000...9 years from that, I would have doubled my $120k to $240k!!!

-9 more years meant $420k and in 9 more years...by the time I would have been at retirement age, my $60k (without ever having deposited another cent) would have been $840,000!!!!!!

 

THAT, my friends, is compounding interest and the RULE OF 72!

(Photo Credit: Getty Images)

So, as you're going out to spend hundreds of dollars this weekend on booze and over-priced restaurant food, think about how much that $200 could REALLY become if you just saved it!

UGH, I'm still upset about my decision from years ago, but there's NOTHING I can do about it now except tell everyone I know what I wish I knew then!

 

 

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