Monthly Finance Message:

# The Power of 10

June 2007

Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers NJAES Cooperative Extension

The number “10” is a powerful tool. It is easy to multiply, divide, and remember; small enough not to discourage people from taking action; and large enough to make an impact over time. “10” also shows up repeatedly in expert recommendations to improve health and wealth. Whether it’s shedding 10 pounds, exercising in 10-minute increments, saving 10% of one’s gross income, reducing debt by \$10 a day, or earning a 10% long-term investment return, “10” and derivatives of 10 (e.g., 1 and 100) are strong motivators if the magnitude of their impact is fully appreciated.

Below are some financial tips to consider that are based on the number 10:

• “Pay yourself first” by saving at least 10% of your gross income. If you earn \$50,000, you’d save just under \$100 per week, preferably through payroll deduction. If you start saving \$100 a week in your 20s, with an 8% return, you’ll have over \$1.5 million in 40 years to provide financial security in later life.
• Add just \$1 a day (\$30 monthly) to the minimum monthly payment due on credit cards. According to Slash Your Debt by Detweiler, Eisenson, & Castleman, paying \$1 a day more than the minimum due on a \$5,000, \$10,000, and \$15,000 balance on a 17% interest credit card will save \$7,624, \$12,615, and \$16,168, respectively, in interest payments.
• Save \$10 a month, or multiples thereof, using the table below as a guide. Find the intersection of the interest rate that you expect to earn and the number of years you’ll be saving. Adjust the number according to your savings; e.g., multiply the figure by 5 for \$50 (\$10 x 5) of savings.
Accumulations Possible By Saving \$10 Per Month at Various Interest Rates and Time Periods
 Year 4% 5% 6% 7% 8% 9% 10% 1 \$122 \$ 123 \$124 \$125 \$125 \$126 \$127 2 249 253 256 258 261 264 267 3 382 389 395 402 408 415 421 4 520 532 544 555 567 580 592 5 663 683 701 720 740 760 781 10 1,472 1,559 1,647 1,741 1,842 1,950 2,066 15 2,461 2,684 2,923 3,188 3,483 3,812 4,179 20 3,668 4,128 4,644 5,240 5,929 6,729 7,657 25 5,152 5,980 6,965 8,148 9,574 11, 295 13,379 30 6,940 8,357 10,095 12,271 15,003 18,445 22,793

Source: How to Save \$1,000 or More a Year, Rutgers Cooperative Extension Fact Sheet 539. Available at njaes.rutgers.edu/pubs.

• Save \$1 a day, plus pocket change, in a can or a jar by reducing daily expenses by \$1. You should be able to save about \$50 a month or \$600 a year. Increase the daily savings amount to \$2 or \$5, plus loose change, and you’ll have around \$1,000 and \$3,000, respectively, saved.
• Invest a portion of long-term (i.e., financial goals that are 5 or more years in the future) investments in stocks and stock mutual funds to potentially earn returns that have averaged about 10% a year since the mid 1920s. Beware of the risk-reward relationship, however. When you are investing, there is a positive relationship between the amount of expected return and the risk of losing your money. Stocks have more risk than bonds and cash investments but have historically provided a higher return over time.