Have you ever heard someone say that spending $5 on a coffee every day is a huge waste of money and you immediately thought “eh its just $5 dollars”?
Here’s a simple way to understand just how expensive that Starbucks coffee or any other small expense really is:
Its called the Rule of 752
The Rule of 752 says that if you take a weekly expense and multiply it by 752 you will get the number you would have made had you invested that money over the next 10 years with a 7% return.
So lets take the $5 daily coffee example. $5 x 6 days a week is $30 a week. Multiply $30 by 752 and you get $22,560
If you skip the $5 coffee every morning and instead invest it with a 7% return you would have $22,560 in ten years.
Now go through your credit card statements and I’m sure you will find many such expenses that you can live perfectly well without. Imagine cutting out just $20 a day on non essential expenses and instead investing that money with a 7% return you would have over $100k in just ten years!
What I find amazing is that you can get 12% returns by investing in low cost Index funds! That means in 10 years you would accumulate a lot more than $100k just by wasting less money and investing it instead.
The simplest way to invest in stocks and index funds is with Robinhood. I do all my investing with this app. Its free and there are no fees whatsoever. In fact, if you join Robinhood with this link we’ll both get a stock like Apple, Ford, or Facebook for free.
If you want to learn more about investing in low cost index funds, Tony Robbins wrote an excellent book that will open your eyes!
Here’s another rule that can help you bring your finances into perspective.
Its called the Rule of 25x
Assuming you’ll live off of 4% of your nest egg (money you saved) each year, you need 25 times your annual expenses in savings to retire.
So for example, if you need $100k a year to cover your annual expenses you would only need $2.5m dollars in savings to retire for the rest of your life! Assuming you are getting 4% interest on your $2.5m you would be making $100k annually from interest. And if your annual expenses are also $100k you would have $2.5m in your bank forever.