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SAVE

Save. The amount of capital you start with is not nearly as important as organizing your life to save regularly and to start as early as possible. As the sign in one bank read:

Little by little you can safely stock up a small reserve here, but not until you start.

The fast way to affluence is simple: Reduce your expenses well below your income-and Shazam!-you are affluent because your income exceeds your outgo. You have "more"-more than enough. It makes no difference whether you are a recent college graduate or a multimillionaire. We've all heard stories of the schoolteacher who lived modestly, enjoyed life, and left an estate worth over $1 million-real affluence after a life of careful spending. And we know one important truth: She was a saver.

But it can also go the other way. A man with an annual income of more than $10 million-true story-kept running out of money, so he kept going back to the trustees of his family's huge trusts for more. Why? Because he had such an expensive lifestyle-private plane, several large homes, frequent purchases of paintings, lavish entertaining, and on and on. And this man was miserably unhappy.

In David Copperfield, Charles Dickens's character Wilkins Micawber pronounced a now-famous law:

Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Saving is good for us-for two reasons. One reason for saving is to prevent having serious regrets later on. As the poet John Greenleaf Whittier wrote: "Of all sad words of tongue and pen, the saddest are 'It might have been.'"* "I should have" and "I wish I had" are two more of history's saddest sentences.

Another reason for saving is quite positive: Most of us enjoy the extra comfort and the feeling of accomplishment that comes with both the process of saving and with the results-having more freedom of choice both now and in the future. Sensible saving is a lot like maintaining good health. Bolster the process of saving through good habits and the results can generate positive feelings.

No regrets in the future is important, or will be, to all of us. No regrets in the present is important, too. Being a sensible saver is good for you, but deprivation is not. So don't try to save too much. You're looking for ways to save that you can use over and over again by making these new ways your new good habits.┼

The real purpose of saving is to empower you to keep your priorities-not to make you sacrifice. Your goal in saving is not to "squeeze orange juice from a turnip" or to make you feel deprived. Not at all! Your goal is to enable you to feel better and better about your life and the way you are living it by making your own best-for-you choices about when to spend. Savings can give you an opportunity to take advantage of attractive future spending opportunities that are important to you. Saving also puts you on the road to a secure retirement, buying a new home, or sending your children to college. Think of saving as a way to get you more of what you really want, need, and enjoy. Let saving be your helpful friend.

FIRST DO NO HARM

The first step in saving is to stop dis?saving-spending more than you earn, especially by running up balances on your credit cards. There are few, if any, absolute rules in saving and investing, but here's ours: Never, never, never take on credit card debt. This rule comes as close as any to being an inviolable commandment. Scott Adams, the creator of the Dilbert comic strip, calls credit cards "the crack cocaine of the financial world. They start out as a no-fee way to get instant gratification, but the next thing you know, you're freebasing shoes at Nordstrom."

Credit card debt is great-but not for you (or any other individual). Credit card debt is great for the lenders, and only the lenders. Credit cards are a wonderful convenience, but for every good thing there are limits. The limit on credit cards is not your announced "credit limit." The only sensible limit on credit card debt is zero.

Credit card debt is seductive. It's all too easy to ease onto the slippery slope-and slide down into overwhelming debts. You never-well, almost never-get asked to pay off your debt. The bank will "graciously" allow you to make low monthly payments. Easy. Far too easy! Your obligations continue to accumulate and accumulate until you get The Letter, saying you have borrowed too much, your interest rate is being increased, and you are required to switch, somehow, from money going to you to money going from you to the bank. You are not just in debt, you are in trouble. If you don't do what the bank now says you must do, legal action will be taken. Be advised! Never, never, never use credit card debt.

START SAVING EARLY: TIME IS MONEY

The secret of getting rich slowly but surely is the miracle of compound interest. Albert Einstein is said to have described compound interest as the most powerful force in the universe. The concept simply involves earning a return not only on your original savings but also on the accumulated interest that you have earned on your past investment of your savings.

The secret of getting rich slowly, but surely, is the miracle of compound interest.

Why is compounding so powerful? Let's use the U.S. stock market as an example. Stocks have rewarded investors with an average return close to 10 percent a year over the past 100 years. Of course, returns do vary from year to year, sometimes by a lot, but to illustrate the concept, suppose they return exactly 10 percent each year. If you started with a $100 investment, your account would be worth $110 at the end of the first year-the original $100 plus the $10 that you earned. By leaving the $10 earned in the first year reinvested, you start year two with $110 and earn $11, leaving your stake at the end of the second year at $121. In year three you earn $12.10 and your account is now worth $133.10. Carrying the example out, at the end of 10 years you would have almost $260-$60 more than if you had earned only $10 per year in "simple" interest. Compounding is powerful!

THE AMAZING RULE OF 72

Do you know the amazing Rule of 72? If not, learn it now and remember it forever. It's easy, and it unlocks the mystery of compounding. Here it is: X ×Y = 72. That is, X (the number of years it takes to double your money) times Y (the percentage rate of return you earn on your money) equals . . . 72.

Let's try an example: To double your money in 10 years, what rate of return do you need? The answer: 10 times X = 72, so X = 7.2 percent.

Another way to use the rule is to divide any percentage return into 72 to find how long it takes to double your money. Example: At 8 percent, how long does it take to double your money? Easy: nine years (72 divided by 8 = 9).

Try one more: at 3 percent, how long to double your money? Answer: 24 years (72 divided by 3 = 24).

Now try it the other way: If someone tells you a particular investment should double in four years, what rate of return each and every year is he promising?

Answer: 18 percent (72 divided by 4 18).

For anyone whose attention is attracted by the Rule of 72, the obvious follow-on is surely compelling: If a 10 percent rate of return will double your money in 7.2 years, it will double your money again in the next 7.2 years. In less than 15 years (14.4 years to be exact), you'll have four times your money-and sixteen times your money in 28.8 years.

So if you're 25 and you skip one glass of wine at a fancy restaurant today, you might celebrate with your spouse the benefit of compounding with a full dinner at that same restaurant 30 years from now. The power of compounding is why everyone agrees that saving early in life and investing is good for you. It is great to have the powerful forces of time working for you-24/7.

Time is indeed money, but as George Bernard Shaw once said, "Youth is wasted on the young." If only we could all train ourselves at a young age to know what we know now. When money is left to compound for long periods, the resulting accumulations can be awe inspiring. If George Washington had taken just one dollar from his first presidential salary and invested it at 8 percent-the average rate of return on stocks over the past 200 years-his heirs today would have about $8 million. Think about this every time you see Washington on a U.S. dollar bill.

Benjamin Franklin provides us with an actual rather than a hypothetical case. When Franklin died in 1790, he left a gift of $5,000 to each of his two favorite cities, Boston and Philadelphia. He stipulated that the money was to be invested and could be paid out at two specific dates, the first 100 years and the second 200 years after the date of the gift. After 100 years, each city was allowed to withdraw $500,000 for public works projects. After 200 years, in 1991, they received the balance-which had...