the future

The future is one of the weirdest things to think about: it doesn’t exist yet, but EVERYONE is doing something about their future. People plan weddings, buy houses, have babies, etc. All of it, careening into the future.

Today, I embraced my future. Economically speaking, that is: I purchased the first of (hopefully) many $50 I-Series Government Savings Bonds.

My goal is to buy a $50 i-bond a month for the rest of my life. If I treat it as an expense (like a cell phone bill, or rent) it’ll be money i can justofy spending. Sure, my budget will get the slightest bit tighter, but if I focus on the realization that this is an expense that purchases more money, I’ll feel a lot better about it,

I-bonds are cool because they have a built-in compensation for inflation. The composite interest rate is computed by using a combination of the fixed flat rate laid out at the issuance of the loan, and the consumer price index (a common tool used in measuring inflation rates) which changes every 6 months (I believe on may 1st and November 1st).

When the rates change, the bond draws interest for that period at the composite rate, and then a new composite rate is computed for the resultant sum of last period’s interest and the principal investment of the bond.

For example: if i purchase a bond today at $50 principal, with a rate of %3.5 on May 1st 2005, it will draw interest on the 50 dollars at 3.5% for the first 6 months. then, on November 1st, 2005, the interest will pay to the bond value: the bond is now worth 50 dollars plus 3.5% interest, or $51.75. The inflation rate may have gone up, say, 0.4%… this will factor into the composite rate of the bond, and bring the interest rate up to (if i did my math right) 4.47%. So then on May 1st 2006, the bond will draw interest at 4.47% on top of the $51.75, not just the $50.

Long story short: if i assume an average rate of %3.5 over a 20 year period, with interest paid twice a year, the bond will be worth over $200.00

It quickly becomes obvious how awesome this is. If I buy one of these every month, in 20 years, i’ll be getting an extra $200/month of income.

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