Make Thousands With Your Spare Change - Compound Interest
By Jason Istvan
Have you noticed the increased prevalence of tip jars and 'give a penny, take a penny' trays at gas stations and convenience stores? You all know what I am talking about... A chocolate bar and a coffee sells for $1.94 so you end up with six pennies. Lots of people hate pennies - and who can blame them? They're so worthless that even the government has considered phasing them out (true story - they cost more to make than they are worth!).
Now, I understand why you drop those pennies into the tray because you don't like to carry them. They just get lost anyway; why bother? You might help out the guy who is shy a half-slug or make changing a purchase easier later.
Lately, a lot of fast food restaurants and other places which our society traditionally doesn't tip have been putting out jars for tips. More and more people simply can't be bothered to put their change back in their pocket! I've seen cases of people putting 20 or even 30% into a tip jar at a Chipotle or McDonald's because they were too lazy to reopen their wallets.
Now, don't get me wrong - I believe in tipping appropriately for service. Many restaurant employees make only $2.25 or so per hour, far below minimum wage, because restaurateurs know that their state allows it because waiters get to keep their tips. These people generally work hard to earn relatively meager tips, so I believe that service deserves its reward.
However, consider the situation. Are you tipping because they earned the money and did a good job, or because you don't care about that pocket change? Those few cents can make you money for the rest of your life. They can (and do!) quickly add up into dollars. You can decide to just give them away into a jar without thinking, or make those dollars work hard for you.
Drop it in a jar, or on the sidewalk, or spend it, and that dollar is gone forever. It leaves your life, probably never to return. However, use that dollar on an investment and that one dollar can work for you for the rest of your life! You might think that one tiny, insignificant dollar isn't worth the hassle, but think again. How? Magic.
Let's say you start simply. Many banks will let you open a savings account with as little as $25. A lot of people have more than that in change lying around their house: under the seat cushions, in the change tray by your door, in the car, under the bed... The hiding places are endless. Collect all of your change! Take it to a bank. Now all that extra change you keep from throwing into tip jars or pick up in the street can be put into your savings account. Let's say you make 3% interest, compounded daily, on this account (a reasonable number - many banks are paying more than that, even in this economy) and never touch it again. Note: This is using simplified calculations for simplicity's sake. Actual amount would vary slightly depending on APY vs. APR.
One dollar that you didn't give away becomes $1.03 after one year. After five years it is worth $1.16. After ten it is worth just over $1.34. In twenty-five years it's worth $2.09.
I know that this seems like nothing. But consider how much change you get in an average year... All of the pennies, nickels, dimes, and quarters really add up. A few weeks ago I deposited over $150 for about six month's worth of change. That's probably a lot, because I like to use cash to buy things as it is harder to part with. Let's say the average person racks up ten dollars a month in spare change. Now imagine - say you put that ten dollars into your account at the end of every month. You start with $25 to open the account. So, at the end of the year, on Dec. 31, you put in the last $10, for a total of $145 invested in the year. Every year after that, you continue putting in $10 per month on the last day of each month.
Over the course of ten years, you would have invested $1,125.00 into this account, but it would be worth $1,431.51.
After twenty five years, you will have put in $3,025.00, and have a worth of $4515.55.
After fifty years, you'll have invested $3,625.00, but your account will have a whopping $14,021.77 in it!
Clearly, the sooner you start doing a program like this, the sooner and longer your change can start to accumulate wealth for you. Now those dollars are working for YOU! While clearly most people won't leave all of their money in for 50 years, this serves to show just how powerful even spare change can become. Not dropping change can, in the course of 25 years, become what you see - literally thousands of dollars in interest.
Also, 3% is also fairly conservative. Imagine if you got 5%... 6%... 8%... or even more, with stocks, bonds, or other investment vehicles. Compound interest really adds up, even with just a dollar or two at a time. Using this makes the money work for you. Don't spend your money haphazardly on things just because they are inexpensive! Even small amounts of money, given time, are important. Imagine the possibilities if larger amounts started working for you! Try putting away $50 a month at 5% interest (totally manageable for most people!)... How much do you think that would be worth after 50 years? I'll let you work it out. Make your dollars work for you!
(Hint: After 25 years, you'd have almost $30,000... With only half of that deposited by you! And after 50 years, you'll have earned well over one hundred thousand dollars in interest...For just $50 per month.) This is the power of your small change!
View all of my articles and thoughts on personal financial health at http://financialhealthguy.com/
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