The Lottery Retirement Plan

Avoid Financial Hardships Playing the Compounding Interest Lottery

Studies show that 16 percent of Americans are counting on the lottery to pay for their retirement, according to Farm Credit of Western New York. Unfortunately, for those 16 percent, lottery gambling offers the worst odds - you have a better chance of getting hit by lightning.

Counting on the lottery, social security or pension plans to secure your retirement is risky. Chances are - if you're under 30 - you will never see a dime from any of these. But there is an easy way to make sure you hit millionaire status without a lot of effort on your part.

Did you know that for only $70 dollars a month you have a good chance at having a million bucks! No not the lottery - by investing $70 a month starting at age 18 you or your child could reach millionaire status without a lot of effort and enjoy the comfort of financial security well before retirement age.

By investing young you will have what the 16 percent of people are hoping and praying for everyday. A lottery jackpot that is guarenteed! Secure your own jackpot by understanding the basics about money.

The money principle that will almost guarantee every young person generates their own lottery winnings is 'compounding interest'. Compounding interest has a snowball effect on your money and the earlier you start to harness the power of compounding interest the easier it is.

What is compounding interest?
Have you ever been in debt and see your credit card bills get bigger and bigger even though you try to pay them off - well that's compounding interest working against you. If you have experienced this you have felt the power of compounding interest. The goal is to get compounding interest to work in our favor.

Compounding interest is defined as interest income that is earned by the amount you invested and the interest earned from prior periods. Basically your investment is paying you money on the amount you invested plus the return you have already earned. So you're making money from what you put in plus the amount your investment has already yielded.

Once you get compounding interest working in your favor it creates a snowball affect on your money. It grows faster and bigger the longer your investments are earning you a return. So the money you earned in interest last year is making you money. After 15 years you have 15 years of interest earnings making you money.

It's difficult to grasp how powerful compounding interest is by just reading. Learn how to calculate compounding interest so you can see for yourself just how powerful compounding interest is.

How to Calculate Compounding Interest
There are several ways to calculate compounding interest. You can access compounding interest calculators online at www.FreeBy30.com/investing.html. In addition you can always do it manually with a hand held calculator. To calculate compounding interest manually, you would simply enter the amount you have invested. Then multiply that by the rate of return you are estimating.

For example, if you had $5,000 invested and thought you would get a 10% return then you would multiply $5,000 x 1.1 = $5,500. For the next year you would use $5,500 x 1.1 = $6,050. After 10 years that would be up to $12,968, $33,637 after 20 years and $87,246 in 30 years. All that from a $5,000 original investment - that's the power of compounding interest!

Compounding interest examples
Below are some examples of compounding interest. Each of the examples assumes an investor is starting with $0 and using a 12% return.

Invest $100 per month and be a millionaire in 38 years.
Invest $200 per month and be a millionaire in 32 years.
Invest $400 per month and be a millionaire in 27 years.
Invest $700 per month and be a millionaire in 22 years.
Invest $1,200 per month and be a millionaire in 17 years.

Real Estate - supercharge the effects of compounding interest.
Real estate gives you the advantage of leverage so the effects of compounding interest are greater. With other investments, like the stock market for example, you are earning interest based on the amount you invest. With real estate compounding interest is based on the value of the asset you control.

For example if you had $10,000 invested in the stock market and your stocks appreciated 10% you would make $1000 the first year. Not bad.

However with real estate you could purchase a home with 10% down. So you could buy a $100,000 property with the same $10,000. Your return would be calculated off the value of the property - $100,000 in this case. So the value of your property after the first year would be $110,000 ($100,000 x 1.1).

The value of the property would be $121,000 the second year and $259,374 after 10 years. The power of compounding interest works faster when you have the ability to leverage your investments. Real estate investing allows you to amplify the power of compounding interest.

Gamble with the lottery or go with the sure winner - compounding interest.
Whether you want to stick with simple stock market or real estate investments the important thing is that you use compounding interest to your advantage. The earlier you start the greater impact compounding interest will make in your life. So put down that lottery ticket and start investing NOW!

'Financially Free by 30' is a course developed by Vince Shorb that teaches people simple ways to become financially free. Go to www.FreeBy30.com to receive free video lessons.