Have you ever played with your savings account using a personal finance calculator that compares before and after tax returns? I encourage you to have some fun with this so you can see the enormous rewards of putting aside money to grow every month. If your money compounds in a tax deferred savings account, the difference is amazing!
At Financial Woman there’s a focus on starting with financial goals, which are also life goals. You can easily use one of my very favorite free financial planning calculators to see, first, the beauty of money compounding over time, and second, the difference between money that grows tax free and investment earnings that are taxed. Did you know that $100,000 saved for 10 years earning an 8% return with a federal tax rate of 28% and a state tax rate of 6% will grow to a notable $167,285 in a taxable savings account?
Now let’s remove those taxes and the same savings account grows to a much more impressive $215,893. Now granted, there may be reduced tax rates for long term capital gains for investments which may affect this equation, but that’s a topic for another day. The point for today is to pay attention and make sure you are first, growing your money, and second, placing your investment assets in the most favorable account for tax purposes based on your objectives for each investment (income or capital appreciation).
Talk about getting motivated to focus on growing your money! These compounded amounts will definitely do that! And the best part is that you don’t have to work for this increase in wealth other than learning how to invest strategically and then doing in.
Even after the turmoil of the past decade, most of the old money rules still apply, although many feel more uncertain than ever about the amount of money in their savings account. Let’s look at those timeless money rules:
- Put aside money to grow every month
- Focus on creating positive cash flow so you can do number one
- Invest money wisely so it compounds
- Grow your money tax deferred or at the lowest tax rate possible
- Start putting aside money to compound as early as possible OR wherever you are RIGHT now!
Compounding tax free or tax deferred wealth can happen in traditional savings account investments like stock and bonds, or in other more alternative investments, such as real estate, by using smart tax strategies.
These money rules don’t change. Create the financial peace and security you want by putting these simple but profound enduring money principles in place. Step into becoming a financial woman today by taking action to catapult your savings account earnings so you can live the life that you want!