Napkin Finance

Tina Hay

• Publisher: Dey Street Books
• Year: 2019
• ISBN:
  9780062915023
• Topic: Développement personnel
• Subtopic: Finances personnelles

WALL STREET JOURNAL BESTSELLER

"An incredible, compelling read. It covers an astonishing amount of ground with basic simplicity and good humor. A masterful starting point for any investor. Tina Hayis a wizard."—Ben Stein, economist, author, actor and commentator

A handy crash course in personal finance, Napkin Finance is the groundbreaking guide everyone needs to help them manage their money and feel more secure. Surveys have found that two thirds of Americans can't pass a basic financial literacy test, and nine in ten believe personal finance should become a required high school course. Tina Hay understands the confusion. While attending Harvard Business School, she struggled to keep up with classmates–many of whom came from the banking world–when it came to understanding jargon and numbers-heavy concepts. Tina developed a visual learning strategy using sketches and infographics that helped her succeed in her studies and master even the most complex financial topics.

Since then, Tina founded Napkin Finance, a thriving company built on the concept of taking seemingly overwhelming topics—such as budgeting, investments, and retirement accounts—and turning them into simple, skimmable explanations. Now, she's synthesized the most important content into this personal finance handbook. Napkin Finance includes dozens of individual learning modules, on topics ranging from credit scores to paying off student loans to economics and blockchain.

The first illustrated guide that makes finance fun and accessible, Napkin Finance can help even the most numbers-phobic reader learn about complex financial topics without dying of boredom.

1

Money 101

THE BASICS

Compound Interest

You’re probably familiar with the basic concept of earning interest: You put $1,000 in the bank, and the bank pays you a little bit in return, such as 2% per year. At the end of the year, you’ve earned $20.

If you leave that money in your account, in the second year you’ll earn 2% on $1,020, not just on your original $1,000. And instead of earning $20, you’ll earn $20 and 40 cents (you high roller, you). Compound interest refers to earning money on that growing balance (or put another way, earning interest on interest).

The magic of compounding is that your money grows exponentially. That extra 40 cents may not sound like much. But over time and with big enough numbers, compounding delivers mighty results.

$10,000 vs. $0.01

Would you rather receive $10,000 a day every day for a month or one penny that doubles each day for a month? (Hint: It’s a trick question!)

Thanks to compounding, at the end of one month the doubling penny will have earned you $10,737,418 (and a massive need for some coin wrappers) compared with $310,000 if you had collected $10,000 per day.

Boosting Your Money’s Growth

Compounding always speeds along your money’s growth (unless you withdraw your money instead of letting it continue to grow). But three main things can help turbocharge your compounding:

• A higher interest rate
• Adding more money along the way
• Giving your money more time to grow

Fun Facts

• Compound interest is thought to have been invented in ancient Babylon around 2000 B.C., making it only slightly younger than the wheel.
• How many years will it take your money to double? Divide the number 72 by your interest rate to get a rough estimate. (It’s called the “rule of 72.” See chapter 12 for more information.)

Key Takeaways

• Compound interest is when you earn interest on interest (or pay interest on interest).
• Investors talk about the “magic of compounding” because of the incredible way it can grow your money.
• To increase your money’s compounded growth, try to invest more money, let your money grow for a longer period, and find the best return rate you can.

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I told my parents my allowance should pay compound interest and they told me to move out of the house cuz I’m in my thirties. —Napkin Finance

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Savings

Savings are funds that you put aside and don’t spend.

Life can be full of surprises, both good and bad, but building savings is a great way to make sure you have cash available for emergencies, unexpected bills, medical expenses, and future goals. Most important, saving is key to building a lifetime of financial security.

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“Do not save what is left after spending, but spend what is left after saving.”

—WARREN BUFFETT, BILLIONAIRE INVESTOR

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Benefits of Savings Accounts

Saving money is a great habit to get into. Keeping your hard-earned stash in a dedicated savings account also comes with certain benefits, including:

• Stability—Savings accounts don’t bounce around in value and won’t lose money. They’re for preserving what you have.
• Growth—Your money grows in a savings account as you earn interest.
• Safety—The U.S. government, through...