GROW YOUR MONEY:
THE WONDERS OF COMPOUND INTEREST:
“You want your money to hang out with two best friends: time and compound interest.” So, said best selling author and personal finance expert Chis Hogan. Compound interest is likened to a snow ball going downhill, as it picks up momentum the bigger it gets. What is compound interest? It’s simply interest earned on interest. Interest is earned on the principal, and then the next period, interest is calculated on the new principal plus the interest that was earned. Chris Hogan calls it a “Mathematical Explosion. Therefore, let compound interest work for you to create financial freedom. Don’t let it work against you by creating debt. A credit card debt is an example of compound interest working against you. Let compound interest be your friend by investing and keep investing. If you haven’t started an investment plan, now is the time to get started. There is not perfect time to invest, you just need to start. Motivation is temporary, but habit lasts whether they be good or bad. Develop successful habits. Why not develop the habit of investing and experience the snowball effect through the wonders of compound interest? As habits compound over time so does investing for the long term. Remember make time and compound interest your best friends and be on the path of wealth creation.
Albert Einstein once said 'Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it. Do you want to earn through compound interest or do you want to pay compound interest? Remember in our first episode we recommended that we should let our money work for us. You create wealth by putting your money to work and the longer your money is working, the more it compounds. Your investment can get to a stage of exponential growth. Here is an example of how compound interest works for you. If you were to invest a sum of money at say 10% for 5 years, your investment would have multiplied1.6 times. If you invested $100,000 at 10% for 5 years, your investment would become $164,531; which means you have realized a return of $64,531 on your investment. In other words, your money has multiplied by 1.6 times. If the interest of 10% remains the same then the value of that investment in 10 years would be $270,704, which means your initial investment of $100,000 would have multiplied 2.7 times or 270%. At this stage your investment is poised for exponential growth. That’s how compound interest work for you.
Bestselling author of “Women & Money” Suze Orman says “The key to your financial freedom in the future is investing when you are young,” I agree. Many of us were not taught to invest when we were younger, instead we were taught to save. As a Financial Advisor I encourage clients to start where you are. You can’t undo the past, but you can change the future for the next generation. When you start investing late in life it becomes a race against the clock. Suze Orman said it’s best to invest a lesser amount when you are young, than waiting to invest 5 or 6 times the amount when you are older. Living Above Self encourages our young people to invest early. It’s a weapon against poverty and the recipe for wealth creation.
Author and personal finance Advisor Dave Ramsay said “The power of compound interest on investments is HUGE. “The faster you can kick debt to the curb, the more time you'll have to invest and build wealth”
Thanks for listening to Grow Your Money. We look forward to another informative episode next week on Living Above Self.
NUGGETS OF WISDOM
Living Above Self welcomes you to Episode 2 of Nuggets of Wisdom. This week we feature the “Miracle of the Chinese Bamboo”. A struggling Chinese farmer wanted to provide for his family for the future. He started with a seed and a vision to see his bamboo towering over 90 feet. He did as Stephen Covey said “Begin with the end in mind”. He was willing to wait to see his dreams come true. It started with the farmer planting his bamboo seeds. Day after day he watered the spots. Months, passed and he saw nothing to show for his effort. He had to feed his family so he planted other crops while he continued to carry buckets of water to nurture his dreams for the future... A year passed and there was nothing to show for his hard work, but what appeared to be barren ground. His hopes and dream seemed so far away. Another year went by and he wondered if the seeds have all rotted. There was still nothing to show for all that hard work. His neighbors started to mock his dreams. They laughed at him. They saw him as the farmer who was not so right. He started to question himself. Was he wasting time on a dream that will never come true?
Three years passed and still nothing. He heard of the miracles of the Chinese bamboo. He wondered whether he would reap any rewards for years of hauling buckets to water his dream. The struggling farmer stood over the spots that he has been watering and he cried. But the wind seemed to whisper hope to him. 4 years went by and the barren ground seem to taunt him. Even his neighbors gave up laughing at him. They figured he was insane. The farmer himself wasn’t sure. The habit of pouring water on the barren ground has compounded, so he persisted in watering the spots.
5 years passed and the farmer was tired, tired of chasing his dream tired of planting different crops to feed his family. He wondered if his approach was wrong. All he wanted was a better life for his family; to give them a better future. The farmer decided that it was futile to give up at this point, after 5 years there must be life beneath the ground so he poured more water on the spots. One morning the entire village was alerted by the sound of the farmer calling his family’s attention to the bamboo sprouts coming out of the grand. The entire village came to look at the spots as the bamboo plants began to grow. In six weeks, the bamboo plants had grown 90 feet. After 5 years of nothing, the farmer dreams came true 90ft of bamboo grew within 6 weeks. It was truly a miracle.
The harvesting of the bamboos will now provide all he wanted for his family. New bamboos came forth from the deep roots of bamboos that were formed deep in the ground over the past 5 years. These bamboos will provide for the generations to come. The farmer had created generational wealth. The villagers all started to haul their own buckets of water to water their own dreams. The miracle of the Chinese bamboo is about compound interest. It’s about having faith when there seems to be no reason to have faith. It’s about working on your dreams, being patient and intentional. Staying focused when nobody believes in your dream. What is your dream? How hard are you willing to work on your dream? Are you willing to water your dream? It’s the good Lord who gives the harvest. Let’s all work on our dream this week. You can change the future a day at a time. It all adds up. Thank you for listening to Living Above Self.
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