1.Visit Dave Ramsey's Investing Calculator (opens new window) (plain text link: https://www.daveramsey.com/smartvestor/investment-calculator?snid=tools.investingcalc) to calculate the power of compound interest.

It will help you see how you can earn income by putting to work a part of your paycheck, gifts of money, and extra income. t you will understand how to build wealth through regular saving, diversified investing, and using the power of compound interest.   Feel free to play with the compound interest calculator by adjusting interest rates, dollar amounts, and time.  Use the tool to align your current situation with your financial plans and retirement goals.

Suppose you are a 22 year old college graduate who just started working. While your current savings (or starting balance) is $0, you  automatic deposit of $60 a month (about $2 a day or $720 a year) starting with your first paycheck.

In other words, assume you directly deposit $60 a month into a well diversified investment account earning 7% interest compounded yearly from now until you retire at age 67.

How much would you have in the account 45 years from now when you retire at 67? (Enter numbers only, no dollar sign or comma.  For example, if your answer is $156,241 then enter 156241 as your submission.)

 

2.Assume that you decide to wait until you are age 30 to save for retirement. That is, you delay savings for 8 years. Then you start automatically depositing $60 a month or $720 a year at 7% compounded annually.

How much would you have in the account after 37 years when you retire at 67? (Enter numbers only, no dollar sign or comma.  For example, if your answer is $86,348 then enter 86348 as your submission.)

 

3.Compare your answer from Question 1 to Question 2.

How much less money do you have at retirement because you waited 8 years in order to start saving?  That is, subtract your answer from Question 1 from your answer from Question 2.   (Enter numbers only, no dollar sign or comma.)

 

4.The total value from Question 1 is divided into two parts.  How much is from total contributions (i.e. the cumulative amount from your paycheck)? (Enter numbers only, no dollar sign or comma to the nearest dollar)

 

5.The total value from Question 1 is divided into two parts.  How much is from total interest?  (Enter numbers only, no dollar sign or comma.)

 

6.Now let's go through the same financial exercise using a savings of $90 a month or $1080 a year (about $3 a day).

While your current savings (or starting balance) is $0, you create an automatic deposit of $90 a month starting with your first paycheck.  In other words, assume you directly deposit $90 a month into a well diversified investment account earning 7% interest compounded yearly from now until you retire at age 67.

How much would you have in the account 45 years from now when you retire at 67? (Enter numbers only, no dollar sign or comma.  For example, if your answer is $275,421 then enter 275421 as your submission.)

 

7.The total value from Question 6 is divided into two parts.  How much is from total interest?  (Enter numbers only, no dollar sign or comma)

 

8.Compare the total interest earned from saving $90 per month to the total interest earned from saving $60 per month (your answer from Question 5).  How much more interest have you accumulated by age 67 from saving $90 per month?   (Enter numbers only, no dollar sign or comma.)

 

9.What is the most important lesson to take from this assignment?  Identify at least one frequent expenditure that you could cut out immediately in order to start saving right now.