Our Financial Coaches are always standing by, ready to help anyone who needs guidance managing their financial lives more effectively.
Here are some recent questions they’ve tackled.
Q: What is compound interest and how can it help me?
A: Compound interest is when the interest you earn on a balance in a savings or investment account is reinvested, earning you more interest.
Let’s say you have $1,000 in a savings account that earns 5% in annual interest. In year one, you’d earn $50, giving you a new balance of $1,050. In year two, you would earn 5% on the larger balance of $1,050, which is $52.50—giving you a new balance of $1,102.50 at the end of year two.
Thanks to the magic of compound interest, the growth of your savings account balance would accelerate over time as you earn interest on increasingly larger balances. If you left $1,000 in this hypothetical savings account for 30 years, kept earning a 5% annual interest rate the whole time, and never added another penny to the account, you’d end up with a balance of $4,321.94.
As with any savings or investment plan, the key is consistency. Add small amounts regularly so that both your balance and the interest you earn on it continue to grow. Over time compound interest makes the magic happen.
At Canopy, we have a couple of different options if you are interested in learning how to utilize compound interest. For example, the Kasasa Cash Account has 2.02% Annual Percentage Yield balances up to $10,000.
Q: Saving seems daunting. Where do I start and how do I know what is best for me?
A: You’re not alone. Most people are hesitant when starting to save. For most people, the concept of “extra money” might not make much sense when working hard to keep up with the obligations you already have.
Here are a few tips that can help make saving easier.
- Talk with a Canopy member advocate about setting up a savings account and have them automatically transfer a small amount whenever your paycheck gets deposited. You won’t miss the dollars you save, but over time the balance will grow and as your income grows, your savings will too.
- Set a savings goal. Set an amount that you want to have saved in a year. Then set a monthly savings goal to meet as you work toward that final number.
- Cut unnecessary expenses. Look for places to cut back and save so that in time you’ll have money for things you really enjoy — a concert, dinner at a great restaurant, or that new toy. Save today so you can enjoy tomorrow. Patience is the key.
- Find a side-hustle. Whether it's freelancing, waiting tables, or hauling people’s trash to the dump, there are many ways to make a few extra dollars each month that you can set aside to help reach your savings goal.
- Sell stuff you don’t need anymore. There are a lot of websites and apps where you can sell just about anything — old clothes, vinyl records, CDs, books, furniture, art — the list goes on. Choose technology or have a garage sale. People love to search out and pay for hidden treasures that you might have no further use for.