Work with, not against, the laws of nature
without any extra investment.
Einstein called it the 8th natural wonder of the world. Banks and lenders love it. Wealth chefs understand that it is the single most important wealth accelerator in their wealth pantry and use it to create huge wealth. what is it?
So
Compound Interest. Compounding is where the money you earn from your money goes on to earn more money without you doing anything, accelerating your wealth signifi cantly.
Compounding is also where
you get charged interest on debts you owe, then interest gets charged on the interest, accelerating your debt into the stratosphere, making you very poor - and someone else very rich, at your expense.
If you truly understand compounding, you will never again use credit to buy stuff and you will never, ever again rob your investments. Compounding is the miracle accelerator in your wealth cooking.
makes your money expand. In 200 years,
that $10 compounded at 10% becomes $4465 million, all by itself.
If this is the power of
compounding over time, imagine the impact of combining the power of compounding with regular investment contributions by paying yourself fi rst and reinvesting your investment returns so that compounding can do its magic on that money too.
Okay, so you can manage a bit more than $10 and you don’t want to wait 200 years. If from the day you start earning to the day you retire, let’s say from 18 to 65, you take just $250 a month and invest that in a low cost fund returning a very achievable average return of 10% per annum, you will be a multi- millionaire with $3 231 700. Better still, you would have only put in $141 000.
It is the yeast that But just like
yeast, it needs to be left to do its job. It needs time and the right environment to expand.
Compounding is just a law of nature, not a value judgement.
Just like yeast,
compounding does its job, no matter who uses it or when. It makes no value judgments, it will work for whoever’s mastered it. It doesn’t say: “Oh gee, this is a nice person, I’ll wait till he/she has investments.” Compounding will work against you if you’re in debt, and work for you if you have investments: it’s as simple as that.
Here’s an example: If you leave a measly $10 alone, invested at 10% for 10 years, it become $25.90. Two and a half times its original size
82
For those who need extra convincing: if you invest just 10% of your income at an average market return during your entire working life, that money will make you twice as much money - yes, it will create twice as much money as you earn in your entire working career. How mind-blowing is that? That measly little 10% goes to work, like the elves helping the shoemaker, and ends up making twice the money you do!
Better still, it doesn’t need a house, it doesn’t need a cell phone or fancy wardrobe. It doesn’t need anything, except your guidance and to be left alone in a lovely wealth-producing environment in your asset drawer!
Most people choose to use compounding against themselves. Be one of the smart ones, make the Laws of Nature work for you.
By Ann Wilson, The Wealth Chef sharing the recipes for wealth.
Follow her on Twitter @thewealthchef To advertise in thewire t. 07720 429 613 e.
the.wire@btinternet.com
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