Wednesday, January 11, 2012
How to get 12% to 18% return on your money - GUARANTEED
The entire premise of early retirement is to save and invest enough money until you can live off of the returns the money is generating. Commonly known as 'letting your money work for you'. Of course this is totally dependent on you actually being able to get some kind of return and that, in a nutshell, is what investing is. Most people are satisified with returns of around 7%, and money can grow quickly at these interest rates. You should be thrilled to get 10% or more return. So how would you feel about a guaranteed 12-18 % return, regardless of how the market is doing?It's actually pretty simple:
PAY OFF YOUR CREDIT CARDS.
Any balance you have on there is being charged at least 11% interest. Usually more like 15% There is no point trying to find a place where you can invest and get a 7% or 10% return, when you could put that money towards debts that are racking up 15%. This is one of the reasons paying off debt should be the first step towards financial independence.
I would apply this rule to any debts that are over 5% in their interest rate. So once you have paid off your credit cards and other debt, its up to you to decide if you think you can beat the 4.8% rate you are paying on your mortgage.
Same if you have some sort of other student loan or other kind that is 2-3%. I think you should be able to beat those kinds of interest rates with even moderate investment savvy, so it is perfectly legitimate to take extra money and invest it instead of putting it towards the debt. Always pay at least the minimum payments of course.
It's up to you whether you are comfortable doing that, or if you would rather eliminate the debt and be free of it. A position I totally understand as well. Just make sure you understand the pros and cons of both courses of action.
Something to remember though: It is NEVER a bad thing to pay off debt. You may have missed out on returns by not investing, but paying off your debts can never hurt you. So if in doubt, go that route; regardless of the interest rates.
But for God's sake, pay off anything above 5% or 6 % as quickly as possible. every extra dollar you have should be going towards getting rid of that high-interest debt.
-The Money Monk