This week, Money360 is investigating how you can take a small amount each day for the year 2007 and end up with a solid amount of money at the end of the year.
These calculations take advantage of offers and promotions available in December 2006 and also use interest rates from that time to calculate returns. While the plan still works, the exact dollar amount returned will differ.
Many people are unfamiliar with the face of Thomas Jefferson, even though his likeness appears on printed U.S. currency to this day. Jefferson’s visage appears on the two dollar bill, something that I identify mostly with a gift from my grandfather. It’s a small amount, tiny enough that we often forget about the existence of the bill that represents that amount. What happens if we simply save two dollar each day this year? Where will we be at the end of the year? Let’s take a look.
How can I save $2 a day? Even the slightest trimming from a person’s spending can net two dollars a day. Instead of eating out once every two weeks, eat at home instead and you’ll save just about an average of $2 every day. Cut out about three lattes a week. Visit the library half the time instead of the bookstore. Take your lunch to work twice a week instead of going out. Any of these will net you at least $2 a week.
What are the rules? Each day, you put away $2 towards an investment goal. The goal is to not risk any principal in this investment, to keep it liquid, and to have it set up so that the investment is as easy as possible. To do this, we will be using two online savings accounts in tandem: HSBC, because of the 5.05% APY interest rate, and ING Direct, because of the solid 4.5% interest rate and the $25 signup bonus.
How much can we turn $2 a day into by the end of the year? First, sign up for an account at HSBC Direct immediately. They offer a 5.05% APY interest rate on their basic savings account with no minimum. For the purposes of this exercise, we’ll assume that you make a $10 opening deposit on January 5 into this account, $2 per day.
On January 1, we start saving $2 per day. We set up a direct deposit of $10 into the HSBC savings account on January 5, then a $14 direct deposit on every Friday for the remainder of the year. This amounts to saving $1 a day.
On February 1, the account balance is $52.05. Where’s the rest, you wonder? It’s because February 1 is a Thursday and your direct deposit for the week will happen on Friday, bringing the balance up to $66.02.
On March 1, the account balance is $108.33. Again, you’re peeking on a Thursday, so the balance the next day would be $122.33.
On April 1, the account balance is $178.85. You’ve now earned almost a dollar in interest, and from here on out your money will really start working for you.
On May 1, the account balance is $235.62. As you near the $250 mark, you’ll be preparing to open an ING Direct savings account.
On May 11, the account balance is $263.62. Sign up for an ING Direct account with the $25 signup bonus promotion and deposit $250 from your HSBC account into it. You’ll earn a $25 bonus just for signing up, but you won’t be able to withdraw the balance or the bonus for ten days. When you’re able to withdraw, move the money back to HSBC.
On June 1, the account balance is $331.33. Thus far, you’ve put in $304 this year, so you’ve made $27.33.
On July 1, the account balance is $388.89. You’re at the halfway point in the year and have managed to save $360.00, with $28.89 earned!
On August 1, the account balance is $446.53. You’ve saved $416, with $30.53 earned. In just the last month, the account earned nearly two dollars and it will continue to (by itself) earn more and more as time goes on. Again, all you’ve done this year is set up a direct deposit at the start of the year and just sit.
On September 1, the account balance is $504.40, with $32.40 earned for the year. Your money is steadily and surely growing and you barely notice the $2 a day.
On October 1, the account balance is $576.54, with about $34.54 earned this year. From here on out, the interest earnings will be nice.
On November 1, the account balance is $634.94. You earned $2.40 in interest just this month, more than the amount you’re putting in each day.
On December 1, the account balance is $693.60. On December 16, your account balance will exceed the amount you would have by just putting $2 a day into a jar – all interest and additional investments after that date are pure earnings!
So how much do we end up with? On January 1, 2008, the account balance will be $766.52. You will have made more than $35 this year and the balance in the account right now will earn about $3.20 a month. Of course, at this point, you’ll see how easy it is to save $2 a day and you’re likely to keep it up – or maybe even add more to the amount.
Remember that even though the return percentage is relatively low here (only 4.76%), remember that you didn’t have most of the money in the account for the year.
Amount Saved: $730.00
Amount Earned: $36.52
Percent Return: 4.76%