Introduction to Saving [MORE] Money & the AMAZING Power of Compound Interest!

Chris Haroun
A free video tutorial from Chris Haroun
Award Winning MBA Professor, Venture Capitalist and Author.
4.5 instructor rating • 54 courses • 1,030,234 students

Learn more from the full course

The Complete Personal Finance Course: Save,Protect,Make More

3 Courses in 1! Save,Protect & Make More! By an Award Winning MBA Professor, VC & Best Selling Online Business Teacher.

15:46:12 of on-demand video • Updated April 2021

  • Upon completion of this course, students will be able to save, protect and make much more so that their net worth is significantly higher in the long run. You will be a personal finance expert by the end of this course!
  • How to profit from the INCREDIBLE Power of Compound Interest
  • 100+ Ways to Save More…Including the following ways:
  • 14 Ways to Save More on Taxes
  • 16 Ways to Save More on Shopping Expenses
  • 13 Ways to Save More on Car/Transportation Expenses
  • 10 Ways to Save More on Housing Expenses
  • 5 Ways to Save More on Vacation Expenses
  • 4 Ways to Save More on Gifts & Donation Expenses
  • 6 Ways to Save More on Phone/Computer Expenses
  • 13 Ways to Save More on Food & Drinks Expenses
  • 7 Ways to Save More on Debt Expenses
  • 4 Ways to Save More on Education Expenses
  • 7 Ways to Save More on Entertainment Expenses
  • 6 Ways to Save More on Fees Expenses
  • 5 Ways to Save More on Child/Child Care Expenses
  • 4 Ways to Save More on Health Expenses
  • 5 Ways to Save More on Personal Care Expenses
  • 5 Ways to Save More on Pet Related Expenses
  • How to Change Your Perception of Money
  • How to Teach Your Children About Saving
  • How to Protect Your Money by Understanding Your Net Worth (Creating and Understanding Your Balance Sheet….Meaning “What You Own and What You Owe”)
  • Understand if You Should Hire a Financial Advisor to Help Protect Your Money
  • Understand Why Hiring an Accountant Might be the Best Investment You Might Ever Make
  • How Taxes + Retirement Accounts Work & Why We Need to Minimize How Much Tax We Pay
  • How Much You Need to Retire
  • Understand and Taking Advantage of Tax Incentives, which Help You Save BIG TIME for Education/School Expenses
  • How Much You Need for Education Expenses (for You or Your Kids)
  • How to Create Your NEW & IMPROVED Income Statement (Meaning Understanding Money In and Money Out)
  • Understand Your Company Sponsored Tax Savings Plans (if Applicable)
  • Use a Simple & Effective Money, Taxes, Receipts and Statements Filing System
  • Understand What are the Best Websites & Apps to Help You Track and Manage Your Spending
  • Use Quicken on a PC to Manage Your Money
  • Use Quicken on a Mac to Manage Your Money
  • Protect Your Money by Making a Monthly Budget
  • Avoid Getting Ripped off on Fees
  • Understanding Wills and Trusts
  • View, Understand and Fix Your Credit Score/Rating (So You Can Get a Loan or Mortgage)
  • Understand Life Insurance
  • Understand Auto Insurance
  • How to Pay Less Tax Strategies
  • Understand Home and Property Insurance
  • Understand Health Insurance
  • Prevent Identity Theft
  • Understand Credit Cards
  • Understand Loans
  • Understand Leases
  • What Are the Qualities of Billionaires (5 Characteristics of Billionaires I Have Worked For)
  • Understand the Damage that High Investment Fees Can do to Our Net Worth!
  • Make More by Learning How to Avoid Paying High Investment Fees
  • Understand Why and How to Pick Investments from Index Funds
  • Manage Your Investments with Your Investment Portfolio Management System (Included in the Course)
  • Populate Your Investment Portfolio Management System (meaning Your Portfolio)
  • How to Invest in Stocks and 4 CRUCIAL Stock Investing Rules
  • Investment Data Basics
  • Understand Risk Management
  • Understand What Makes Stocks, Bonds, Commodities and Real Estate Investments Go Up or Down
  • How to Do Your Own Investment Research (and Never Rely on the “Pros”)
  • Understand Mutual Funds
  • Know What Warren Buffett’s Favorite Types of Investments Are
  • Understand Interest Rates, Bonds and “The Bigger Picture”
  • Know How Global Economics Works and Why this Matters to Personal Investors
  • How & Why Do Interest Rates Change & Why this is Important for Investors to Understand?
  • Understand Foreign Exchange Currency Movements
  • How Bonds Work and How Can Governments Stimulate the Economy?
  • Understand Real Bonds - No Theory! (With Real Corporate and International Government Bond Investment Examples)
  • How to Invest in Bonds
  • Add Bond Investments to Your Portfolio
  • How to Invest in Commodities
  • Add Commodity Investments to Your Portfolio
  • Introduction to Your Most Important Personal Investment & How Much Should to Spend on a House
  • How Mortgages Work & How to Calculate Payments (Fixed Rates Versus Interest Only Rates & More)
  • How to Calculate Mortgage Payments and Know What Happens When Rates Change
  • What You Need to Know if Considering Investment Properties
  • How Much to Spend on an Investment Property
  • Understanding Real Estate Investment Trusts
  • Adding Real Estate Investment Trust Investments to Your Portfolio
  • Investment Types to Consider Avoiding Given Liquidity Risks
  • Diversification Strategies and Your Diversified “Model Portfolio”
  • Should You Start Your Own Business & Have >1 Income Stream? 100% YES!
  • Customize Your Own Complete Personal Finance Excel Dashboard (I Will Teach You How to Customize and Create Your Own Version of the Excel Dashboard Document Used for ALL 25 Exercises in this Course)
English (upbeat music) -: Welcome to part one of the course, where we will talk about how to save way more money today and in the long run. In my hand I'm holding a football. Lemme see if you can get a better look at that. Sorry about the glare. See if you can read that, okay? Now, why am I holding this football? Well, I wanna start the saving part of this course by talking about some of the best athletes in the world, okay? And this might shock you. And what do football players have in common? Well, the average national football league or NFL player, makes $5.5 billion dollars per year, and shockingly, 78% of all NFL football players are about to or actually declare bankruptcy within a few years of retiring from playing professional football. Isn't that unbelievable? And a lot of people that win the lottery, couple years later, they spend all of it, and much more. And it's because they obviously didn't have the best savings best practices, which we'll discuss in this section of the course. And I wanna humbly make sure that this type of bankruptcy phenomemon never happens to you. Now, why are most players broke after they retire? Because they didn't live below their means, which I have written up here, "Please live below your means". And they obviously didn't save enough, and they likely didn't understand the concept of compound interest, and the unbelievable future value of savings, which is the first exercise that we're gonna do together in this course. And I'm not picking on the Dallas Cowboys, I just think they have a pretty cool logo, okay? So, very small changes in your spending patterns can lead to enormous fortunes later in life. I'm gonna put this down. I have no idea how to throw these things. I'm not much of an athlete. Okay, I'm gonna put that back there. All right. (laughs) So, yeah, small changes in your spending patterns can lead to enormous fortunes later in life. And we're gonna look at six examples of what I mean by this. And then what we'll do is we'll do an exercise together in the next lecture. And the six examples are also located in your complete personal finance dashboard file on the third tab, right here, see? You can also get here by clicking this gray money calculator button. Okay, now I try to make it easy for you, so there's a couple ways to get to all exercises and options within the spreadsheet. So please open this money calculator tab here, as we go through this lesson, in case you wanted to change the numbers and assumptions as you watch this lecture. And some of the numbers that we're gonna look at here are gonna blow you away. You'll be impressed. I was, at least. So, with all exercises and examples in the Excel file, please only change the white shaded boxes. Now, before I start to explain how you can save a fortune, I wanna talk about the what, why, and how of part one of the course. So let me kick it off with the what. By the end of part one of this course, you'll understand what you can do to save way, way, way, more money. Why? Because once we understand how you can save a lot more money, then in part two of the course I can show you how to protect money, and then in part three I'll explain how to make more money, get your money to work for you. In terms of the how, how are we going to understand together how we can save more money here in part one of the course? Well, we're gonna do a number of exercises to help you understand where your money is going by creating your personal income statement, and we will discuss how to save more, and the incredible power of compound interest. So let's jump right in. By looking here at Example #1 on this tab in your Excel spreadsheet here, called Exercise 1 Time Value of Money. In Example #1 here, let's talk about how much money we can save in your currency by making your own coffee or tea daily. So, you can see that this exercise shows you the outcome in euros because we changed the currency option to euros in the Settings tab. Lemme just change it to US dollars here, okay? Just for this example. And don't worry, as we will use many different currencies in this course, you can always change the white shaded cells to customize what it costs to buy a coffee or tea or other items, et cetera, in your country in this exercise here. So, let's just say that a coffee or a cup of tea costs you $2 daily. Then if you saved that $2 daily by making your own coffee and invested that $2 instead, then in 40 years you would have $326,000, $177 more in savings. Now, if you and your spouse did this, meaning $4 per day instead of two savings, then the savings for a couple would be $652,355 over 40 years. Change it to 45, watch what happens, right, those last five years make it skyrocket. Right, and play around with these numbers too, it's a lotta fun. And so I assume that the money you save is invested at a return of 9.5% annually, which is actually the average historical stock market return. And we'll get to stock market stuff in part three of the course. Separately, rates are historically very, very low today, and they're gonna rise a lot over the next couple of decades, I promise you, and I digress a bit there, as we're gonna cover interest rates in more detail later. Now, please double click on the green cells in order to see how I calculated the values, if you want, or just watch the second last section of this course for how I made this spreadsheet from scratch in case you wanted to customize it yourself. Now, you don't need to have any Excel or finance background to watch how I make the spreadsheet in the second to last section of the course, but if you're interested, the formula I used to calculate the value in 40 years here, or 45 years, whatever number you set it to, is called FV, FV stands for future value of your money. And in this formula, you can see the color coded inputs for the interest rates, which I used as 9.5%, and I divided it by 12, you see there, as I wanted to show you the monthly calculations. Then you have what's called nper, which means number of periods, which is multiplied by the number of months times 40 years, or 45 years, however many years you're using here in your example. Then the payment amount which I used is $60, meaning $2 saved per day times 30 days. And you can then read the bottom line sentence here on the right, that you will see that by saving $60 per month at an interest rate of 9.5% per year, which is 9.5% divided by 12 to calculate the monthly return, then in 40 years, or 40 times 12 months, you'd have $326,177 dollars in savings, for one person. Or for two people, meaning a couple, you would have $652,355 for a couple. It's amazing, it's amazing. And so there's a lot of assumptions here, and I could've made this in daily percents instead of monthly if I wanted to, but let's just keep it simple. We'll stick to monthly in exercise number one, and then we'll do annual calculations in the next example. And so the whole point of this lesson is to show you that small changes can lead to significant wealth generation later in life. And didja ever notice how really wealthy people are often cheap? Now we know how they became wealthy. So for now, please pause me if you want, and play around with Example #1 of 6 here, before moving on to Example #2, as I don't know what the cost of coffee or a tea is where you live in your country, and I want you to play around with the number of years and the interest rate as well, et cetera. And so the bottom line here is I just want us to feel more comfortable with the future value of money that we save today. And so if you spend $4 daily, and so does your spouse on a coffee, which is why we call Starbucks four bucks, sorry, bad joke, then per the change calculation here, this results in over $1 million in 40 years, incredible, eh? Just amazing, amazing. So plug in other numbers if you want to, like the cost of a pack of cigarettes, et cetera, and you'll be amazed how changing your spending habits can make you an absolute fortune later in life. So please pause me, play around with this, and then unpause me when you're ready, and we'll move on to Example #2 of 6 together. In Example #2, we're gonna look at how much money we can save by not buying an expensive item. And, since I'm Canadian, let me change this to Canadian dollars. That's what we call it dollars, not dollars, dollars. Sorry, Canada. (laughs) You can go to Settings, or even just click on the flag here, see the Canadian flag represents, and let's just ignore the exchange rate for now, as it's applicable later in the course, 'kay? You'll see what I mean by this later on in the course when we calculate our portfolio value, we'll be able to convert US dollars to whatever foreign currency we want to. So, in this example, I entered in Luxury Car, but you can change the title here from Luxury Car to something else if you wanted to. And so in this example, if you did not buy that luxury car with a onetime payment of $27, then over 40 years at an average annual return of 9.5%, we would have this much more money in savings, it's a huge amount, huge. So, if you want, double click on the green cell here to see the math behind this calculation. And so, the way to figure out what $1 today is worth in one year is to use the formula you see here in Excel, which is as follows. Your money today times, open brackets, one plus the interest rate to the power of time, that's t. Okay, so if we assume that the interest rate is 10%, then what is $1 worth in one year? Well, we know it's $1.10, but here's the math behind it. It's $1 times one plus the interest rate, which is 10%, to the power of one year, which of course is $1.10. And if we change this to two years, then the $1 in two years at an annual interest rate of 10% is calculated by taking a buck or a dollar times 1.1, which is 1% plus 10%, so 1.1, to the power of two, which equals $1.21. Okay, see how compound interest earns you that little bit extra more? So try plugging out other items into example two here to see what saving your money by not spending would lead to in the future, okay? And so, I debated whether to include this, so my son wants to get those Beats by Dre big earphones for Christmas, which is not gonna happen, because these headphones cost literally $349.99 US, right, for the highest end one. It's a lotta money, right? And I showed my son Andrew (laughs) that if we entered Beats by Dre here in our Example #2, that the $349.99 earphones will be worth over a million dollars by the time Andrew's in his 70s, right, at an annual interest rate of 15%, right, you can play around with the numbers for fun. In fact, the money saved would be worth over $1.5 million as you can see here. And you know, this more than covers his retirement, the cost to raise his kids, et cetera, assuming inflation doesn't get outta control then. And that money could go up by 15% after that date as well. And so, of course, assume your own interest rate here as well, your own assumptions. And the only Beats by Dre gift that my son is gonna get for Christmas will be these ones here. Lemme show you here. Huh? Beets by DRE? Funny? No? Sorry, I'm trying. That's called dad humor. When you get older like me, it's dad humor. Anyway. So if you want, please pause me, and enter in your own assumptions for Exercise #2, including the name of a product, and watch the numbers change and how this is translated into something we can better understand in the sentence that is automatically created here on the right-hand side. I had a lotta fun puttin' this together. I tried to turn Excel math, or finance math, into English to make it fun. It's fun, eh? Moving on to Example #3. How many years does it take for your money to double? And there's this awesome rule called the Rule of 72. And all you hafta do is take 72 divided by the interest rate you wanna use, and this will tell you how many years it takes for your money to double. And so, per Example #3 here, we can see that it takes 7.6 years for your money to double if you invest that money at an interest rate of 9.5%. And so if you want to, please pause me and play around with Example #3 here. Moving on to Example #4. I love this one. How much money do we need to save daily at an annualized interest rate of 9.5% in order to have exactly $1 million in 35 years? So, let's change this one just for fun to British pounds, 'kay? As you can see here, you can either play around with the numbers until you get exactly 1 million pounds, or you can use my favorite simple Excel function, which is called Goal Seek. This is awesome. Here's how you do it. So, per this video here, let's say I wanted to find out how much I needed to save daily in order to have 1 million pounds in 35 years at an annual interest rate of 9.5%. So here's how you do it. You click on the Data tab in Excel, then you select What-if Analysis, then you select Goal Seek. Then set the cell equal to 1 million by changing the amount to save daily, and voila, Excel calculates that you need to save 9.98 pounds daily at an annualized interest rate of 9.5% in order to have 1 million pounds in 35 years. And so if you want, pause me again here, play around with this one. This is awesome. And please note if you can't see the What-if button, and if you're running an old version of Microsoft Excel, then please go to this website here in order to see instructions from Microsoft on how to install what is called the free Solver Add-in. If you have the latest version you won't have to worry about that. Let's move on to Example #5. This one is similar to Example #4, where we calculated how much to save daily, except in Example #5, we're calculating how much we need to save monthly at an interest rate of 15% over 60 years in order to have exactly $1 billion to donate to your favorite charity, so I changed this back to US dollars here, okay? All right. $1 billion for your charity. And so, if you entered your favorite charity name in the Settings tab, then the name of your charity would appear right here. For example, if you entered in my favorite charity, which is called Doctors without Diplomas, then it would appear here, course I'm kidding about my favorite charity. Okay, no more dad humor, I promise, yeah? (laughs) Okay, moving on. I changed the currency again here for this one, and actually, you know what, let's just make it Australian dollars instead of US dollars. So, per this video, we're gonna use Goal Seek and the What-if scenario analysis option, and we see that we would need to save $1,631.34 Australian dollars monthly. And the earlier you get started in life, the better, saving. It's never too late, either. But just please pause me if you want, and play around with this one. Okay, our last example, number six. We're gonna discuss renting versus buying a house or an apartment. And I saved up enough money finally in my 30s for a down payment on a house after wasting so much money renting when I lived in New York City. It was hard, though, because you know, we had to pay off school loans, and you know, Christine and I had to, it's expensive, it's tough, it's tough. It takes a while to be able to save up enough to get that down payment. The earlier you do it in life, the better, a lot of people hafta wait until their later 30s. So, we're gonna discuss mortgages later in the course, but the best rule for mortgages is to assume that the size of your mortgage is never, ever, ever more than two times your annual pre-tax income. So if you make $50,000 per year, then I don't recommend having a mortgage size of over $100,000, and that doesn't include the down payment. Again, we'll discuss this in a heck of a lot more detail later in the course when we talk about mortgages. And the best investment you might ever make might be your house. So for this example, I want you to enter in your current rent payment, or make one up. And I want you to find out what the value of all those rental payments would actually be worth in the future. And you could see from the example here that $600 per month in rent over 50 years at an assumed interest rate of 8% equals $4.7 million dollars. You know, play around with this one a lot, as I want you to buy your place of residence when you can. So please start saving today, and if you're not saving today, don't worry, because you will be by the end of this course, I promise you, 'cause I have over 100 simple tips and strategies on how to save and make more money. Thanks.