The good news is that financial abundance is very, very simple to achieve. All you need do is apply the following simple formula:
HABIT + INVESTMENT VEHICLE + TIME + COMPOUNDED INTEREST =
FINANCIAL FREEDOM
Save a portion of everything you earn. Invest it wisely and re-invest your returns for compounded growth. In time you will have the right amount of capital to create the income you desire. The essential elements of this formula are habit, time, compounded interest, patience and making wise investment decisions.
HABIT:
It is not the amount of income that you have that will make will wealthy. It is what you do with that income. Most people believe that earning more money will solve their financial problems. However, people fall into three categories when it comes to money management:
1) they spend less than they earn (positive cashflow);
2) they spend all that they earn (neutral cashflow);
3) they spend more than they earn (negative cashflow).
Can you see that if you act like a 2) or 3), simply earning more money is not going to improve your financial situation? Money management techniques are a little beyond the scope of this article, but I would urge you to look at some of the many books on the subject. One of the very best which I am sure you have heard about is ‘The 9 Steps to Financial Freedom?by Suze Orman. You can get a copy at http://www.amazon.com/exec/obidos/ASIN/0517707918/investforlife
The single most important investment decision you can make is to decide what percentage of your income you will put aside every week or month ?no matter what ?to invest. The higher the percentage the better, but you must make it a habit. Sir John Templeton, one of the world’s wealthiest self-made investors, had the habit of saving 50% of his income. He formed this habit when he had nothing!
TIME AND COMPOUNDED INTEREST
Albert Einstein called compounded interest the greatest law of the universe! Put simply, it is created by reinvesting your returns so that the returns themselves are gaining a return as well as the individual investment. Here are a couple of examples that will amaze you:
1) Imagine a game of golf in which you agreed to bet on each hole and to double the stakes each time. If you started with just ten cents how much would you be playing for by the eighteenth hole? The answer: more than thirteen thousand dollars!
Hole #1 .10
Hole #2 .20
Hole #3 .40
Hole #4 .80
Hole #5 1.60
Hole #6 3.20
Hole #7 6.40
Hole #8 12.80
Hole #9 25.60
Hole #10 51.20
Hole #11 102.40
Hole #12 204.80
Hole #13 409.60
Hole #14 819.20
Hole #15 1,638.40
Hole #16 3,276.80
Hole #17 6,553.60
Hole #18 13,107.20
2) A single amount of $1,000, put aside safely to return 15% per year, would be worth:
- after 10 years: $4,046
- after 20 years: $16,367
- after 40 years: $267,864
- after 50 years: $1,083,657
Would you like your child to be able to retire a millionaire at 50? This is all there is to it.
3) With regular contributions of very small amounts, the numbers become even more remarkable. For instance, if you were to put aside just $50 a month (that’s only $11.70 a week) from your child’s birth to earn 15% per year, after 20 years you would have just over $64,000. And, if you were to stop contributing at that time and allow it to continue to earn 15% per year, by the time your child was age 50 they would have $4.8 million. If they were able to hang on till age 70 the amount would be $79.1 million!
Can you see the incredible power here? All it takes is a good habit, time, and a good investment vehicle. You could be on chips at McDonalds and never get promoted and end up a millionaire!
Liam Naden has spent a decade studying and applying the
principles of wealth as taught by such financial gurus as Tony Robbins, Robert Kiyosaki and Suze Orman. His findings are contained in a powerful new book,"Creating the Pathway to Wealth", from which this article is taken.
You can learn more at his website http://www.investforlife.com/create.htm