With tax season right around the corner, we held a SPREAD event on basic taxes and personal finance. Learning basic accounting principles and how to read financial statements are essential in navigating today’s world. You, like us, have to start paying Uncle Sam every year, so it’s important to understand tax policies and how to submit your taxes painlessly (and maybe even save some money, like Carmen)! Along with paying a portion of your annual income to the government, we are also at the prime age of managing our money, so that we can quickly pay off student debt, buy a car and house, plan a wedding, and retire! Anna and Carmen talk about both in this event.
Basic Taxes
See SPREAD 22: Basic Personal Income Taxes
Personal Finance
There are seven wonders of the world: the Taj Mahal, the Colosseum, the Chicken Itza, Machu Picchu, Christ the Redeemer, Petra, and the Great Wall of China. These seven wonders tower over the earth, surviving great civilizations and wars. But there is one more wonder that is infinitely larger, “Compound interest is the 8th wonder of the world,” proclaimed Albert Einstein.
Premise #1: Compound Interest and Time are your best friends
What is compound interest? Imagine that you have a penny and you put it into the Compound Friendly Bank (CFB). CFB guarantees that your return is doubles each year. A penny is not that much, so you shrug, leave your penny with CFB, and walk away- forgetting about this event very quickly. Twenty five years pass by and you receive a text message reminding you of your investment. Congratulations, you have $167,772.16 in your bank account at CFB. That, my friend, is compound interest at work.
Year 1 = 0.01
Year 2 = 0.02
Year 3 = 0.04
Year 4 = 0.16
….
Year 25 =167,772.16
Because you didn’t take out your returns in the initial years, your returns grew (principal amount+year 1 interest+year 2 interest+year 3 interest+…) exponentially. If you decided to take your returns out halfway in Year 13, your growth on your investments would slow down.
Conclusion: Designate a portion of your money as investments. Pick an investment and forget about it. Don’t take anything out. Time will make it grow.