In this article we will be explaining what the 8th wonder of the world is.
And that is : Compound interest.
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein.
I’m not sure but if somebody is very smart, you should follow hes advice.
The meaning of compounded interest is a number that is growing by interest and the interest it is received, grows back more interest when untouched.
Normal interest and compounded interest is displayed and counted in procentages wise. Once interest is starting to create interest on its own, you have created a money machine.
Like a snowball that is rolling down hill, it gets bigger and bigger by itself as it takes more and more snow. Once it hits the ground and its done rolling, you have yourself a huge snowball.
With money interest and compound interest it is the same game, the same rules. Keep putting in money, let it reinvest the dividends and interest. Keep it going untill you have yourself a snowball of money.
If you are smart with your ‘snowball’ of money, it will provide for you and your entire life, including generations beyond your own. This compound interest wil create positive cash flow for you, so you can do whatever you want to do with your time.
Compound interest is the freedom maker, freedom from having to work for a living. Freedom from having to work to pay all your debts.
Debt creates negative compounding
Any money that you invest creates positive compound interest, but every ‘bad’ debt you have creates negative compound interest for you and your future. It needs you to keep working and paying the interest until you are finally free from the schackles of debt interest. I call this negative cash-flow.
Lets say you buy yourself a new car for $20.000 with an loan with an interest rate around 6% over a period of 5 year. Totaal costs are $20.000 + $3.199,36 interest = $23.199,36 what you will need to pay back in 5 years.
Each month you have to pay $386,66 for 60 months, thats a long ass time to pay for just getting from A to B. $53,32 from that $386,66 is interest.
If we take a median hourly rate of $15 dollars a hour before taxes, you will have to work an extra 5 hours a month to just service that interest if we count in taxes. When we finally pay off the entire debt on the car, we have worked our asses off for 1.546 hours.
Just because you couldn’t wait a year or 2 untill you could have bought it outright, mabye if you bought it outright you could have even got a discount and save yourself like $2.000 extra.
I’ll bet you can use that $20.000 and 1.546 hours for something way more fun or productive then working a meaningless job.
How to get on the side of positive compounding
How do you get on the good side of compound interest and stop paying somebody else?
Pay off your debt first so you can use those payments for yourself.
Learn about debt and how to get out of it right here.
Once you payed off your debts, use the money you save every month and invest it in the most important thing in your life. That’s your time and freedom!
Lets say you keep your car and invest that same car payment from above in yourself. Investing $386,66 every month with 8% interest every year will create you $29.398,71 after 5 years.
Keep it invested for the next 30 years and you will end up with $567.684. This is enough money to pay off your house, help your childs education or extra money to buy yourself freedom in your older days.
You want to be paid or do you want to keep paying other people?
Thats the difference.
Do you want the money??
Or do you want to give your money away every single month in your life.
This is how the rich get richer every single month. They take their money and invest it in things that increase in value, compounding over several years.
The middle class doesn’t get rich because they keep buying shit they don’t need that decrease in value. Keeping up with the johnesses it is called.
The poor class can’t do both, they don’t earn enough to progress their situation and once they get some money they spend it on useless junk like TVs or other little stuff that adds up.
Focus on your freedom and wealth first
”But you can’t take it with you!!” – A poor bum.
Off course you can’t take it with you, but with a mentality like that you will squander all your money and you’ll have to work your entire life. Just to keep paying for all that junk. You can give something of value to society and it will pay you dearly for it, instead of consuming your way into bankruptcy.
You need to do something that the rest of the world doesn’t want to do, to get results the rest of the world doesn’t get.
You can’t listen to their bullshit, or else they will have you by the balls.
Everybody likes nice shit
We all like nice stuff, my girlfriend and I just bought a cheap house for $110.000 to save money early in our 20’s. We still have our older cars to save money on car expenses. But that doesn’t mean we dont like nice shit. We would really like to buy a big farm or a big home that costs around $600.000 or nice BMW’s that costs around $50.000. But you have to sacrifice things first in order to have nicer things later.
You have to be RICH first before you can comforabily afford such expensive luxuries.
First have your wealth at such a level that you can buy that BMW without even breaking a sweat about that $50K. Then you are rich.
You have to think about the figure you want to achieve that will net you X much a year/a month, so you can live from your investments. After that you can buy yourself a luxury or two. Before you have the money, act broke and keep stacking.
Eliminate negative cash-flow and create positive cash-flow, so you don’t have to use your active income to buy those luxuries. Use the positive cash-flow to buy the dreams you want in your life.
One of the best persons regarding advice on cash-flow is Grant Cardone.