I want to know what daily/weekly/monthly interest rate is equal to a given annual rate? You'd think people interested in their personal finances would all be interested in that and that it would be easy to find online calculators to provide that answer. You'd be wrong (or I'm just not using the correct google phrase?) The closest you can come is to google "Effective Interest Rate Calculator" but that gives you something slightly different. They take the annual rate, divide by the periods for a simple rate and give you a new annual rate. Not at all what I want. I want to go directly from an annual rate to a period rate that, when compounded, produces that annual rate. Obviously, too much to ask (I'm sure somewhere on the vast internet it exists, but where?)
Sure I could manipulate the compound interest formula into an spread sheet but then I'd have nothing to bitch about would I?
Anyway, this story is the jumping off point for my rant.
I'm 53. I'm figuring my retirement plans at a 5% return. Historically you could figure on 7% to 7.5% but that's ancient history. Getting 5% passively is a lot harder than it used to be. So I'm looking at what you need to do to actively get 5%. Thus I need to know a daily/weekly/monthly rate to figure that. Or I could quit being a nit picker and just use the 5.13% rate that these calculators provide as my new goal? You still have to divide 5% by the number of period to get the period rate that results in 5.13%, but it leaves little to bitch about. So now we have 0.0137% compounded daily to result in 5.13% annual. Is that right? I'm so confused.
Put another way, that means for every $10k I have, I need to get $1.37 per day to get 5.13% annual. Put that way, it doesn't seem that difficult. Assuming I didn't screw up the decimal place somewhere which is a very common mistake for me. Or to put it even another way, if I have $6k, then my goal for the day is to earn 0.6 * 1.37 or 82 cents that day. But that's when I retire. To build my nest egg, I'm looking at earning one percent per day (ten dollars for every thousand) with as little risk as possible which would make retirement come in as little as two years. It's only a goal.
The last year has been a complete loss financially for me. I've made no progress which is a large part of my reason for moving to this town in the middle of no place. So last month, again starting from scratch, I've decide that phase one of my financial plan is to save money until my birthday at the end of march. The mental trick I'm using is that the money I'm saving DOES NOT EXIST until then. Nobody has any claim on it, can not borrow it, nothing... until my birthday as which time I will have money for phase two...
One percent daily growth for a year. I consider this very doable. The risk is greed, because it's actually not hard to earn a considerably higher rate when talking about just a few tens of thousands. For example, it's pretty easy to double your money in a week by buying an old car that isn't running and paying a mechanic to make it run. Scaling that up is the problem. The stock market solves the scaling problem but has a different set of risks associated with it. Say I buy a thousand shares of a $5 stock. My broker would charge me $14 ($7 to buy and $7 to sell.) One percent of $5000 is $50 so I need to make $64. It's not that hard to find a $5 stock that will give you 7 cents while avoiding most of the downside (look for a stock that bounces considerably more per day with lots of volume. You need volume to be sure you can sell. You have no idea of what you've done until you are back in cash. You may need to make two buys and one sell for 8 cents. If you can't make 8 cents it's better to sell and take a loss than hope tomorrow gives you your money back. Holding a stock that isn't meant to be held will take all your money over time. Buy and hold is for a different type of stock.) It takes about 15 minutes a day. Trying a variety of things mitigates the risks of just a single type of investment. You must actively look for different prospects. Some things will work and others will not. You keep doing the things that work.
Then I reevaluate for phase three. Going from tens of thousands to hundreds of thousands.
Phase four is reaching my final goal before I'm too old for it to matter.
All of which sounds good in theory. I really have no option but to make it work in practice. We're all getting old and poverty really, really sucks. More perspective.
My ex-wife's plan is much simpler. Continue to work for another ten years while getting a fixed rate 30 year FHA mortgage and make double payments to pay it off in ten. She's then depending on social security and continuing her second job of teaching piano. She's been doing that for the last ten years with some of her successes now in college. It gives her a great deal of pleasure (and some disappointment but that she puts on the parents for not making their young ones practice.)
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