The 800 Pound Gorilla and You

Just thinking a little about the 800 pound gorilla and you. Of course compound interest is the 800 pound gorilla in our financial life. Do you want to fight him or do you want him to fight for you? There are some great free calculators on the Web. I was playing with a few of them this morning. I encourage you to check out your own numbers.

Some loan numbers

$10,000 in credit card debt, no additional purchases,
3 years pay off 16% interest
$351.57 a month Total payoff $12,656.52

$10,000 in credit card debt, no additional purchases,
5 years pay off 16% interest
$243.18 a month Total payoff $14,590.80

Here is something scary to think about. If you want to pay $100 a month on that credit card, you will never pay off the debt. The number of payments is infinite. $200 a month pays off in 83 months. Total payoff $16,600

$300,000 mortgage 30 years 5% interest
$1,610.46 a month Total payoff $579,765.60

$300,000 mortgage 30 years 6% interest
$1,798.65 a month Total payoff $647,514.00

Now let’s put the gorilla to work for you

Some annuity numbers

$100,000 assume conservative 5% growth and a 30 year payoff
Pays you $6,505.14 a year Total payout $195,154.20

$100,000 assume the usual 8% growth and a 30 year payoff
Pays you $8,882.74 a year Total payout $266,482.20

Some systematic savings numbers

$10,000 initial investment, add $100 a month,
Assume the standard 8% growth for 30 years Total $254,129.08

Now the same calculation with a reasonable 401K type contribution

$10,000 initial investment, add $500 a month,
Assume the standard 8% growth for 30 years Total $840,038.86

Now we are talking real money