Growing Wealth is Simple
Growing wealth is simpler than you think – the great secret to a successful financial future is that there is no great secret.
Blend three basic ingredients - a steady income, investment discipline and lastly, time - and you too, can be a heading for a comfortable financial future. It's not always easy, but it's simple. The single most important thing about investing: Becoming wealthy is simple. Not easy, but simple. And second: You have no excuse not to do it.
Only three ingredients are needed: income, discipline and time. Chances are you have two of them available now, income and time. All you need is discipline. Armed with knowledge, that key third ingredient may be a lot easier for you to find.
There’s a wealth of information about investment planning and the need to plan for your future. But few talk publicly about it - even fewer do something constructive. If you admit to mild confusion or the desire to hide under the bed, financially speaking, you’re not alone. One of the reasons why investing can seem so complicated is the huge number of investment options, all calling for your hard earned dollars.
Putting money aside now - most just don’t get it. It’s first called saving – then move onto investing. Focusing on short term outcomes makes for poor decision making. Aiming to make the most money in the shortest time, and while it is natural to want overnight success instant wealth doesn’t just happen, unless you win lotto!
Patience is the real strength. The discipline itself will bring rewards not dreamed of and just what is this compounding interest stuff about? The reinvestment of the interest you receive from the money you set aside. For example, if you invest $10,000 and earn 10% interest on your principal at the end of each year, you'll get in $1,000 interest at the end of the first year. If you reinvest that interest, the second year you would start with $11,000, and thus would earn $1,100 interest. If you stay with it, you'd more than double your money every eight years. (Remember, this is a simple mathematical example and ignores any taxation obligations and does not imply market actual returns)
Compounding, said Albert Einstein, is ‘mankind's greatest invention because it allows for the reliable, systematic accumulation of wealth’. Others say compounding is ‘‘the eight wonder of the world’. Einstein was smart. But you hardly have to be a genius to make this concept work for you. The real magic of investing comes when you combine compounding with continuous and regular investments - in other words, just adopt a disciplined approach.
Make continuous investments by setting up an automatic deduction from your bank account every month. ‘Automatic’ is the operative word here. Trust me on this one; if you don't set it up that way, it won't happen. Instead, you'll end up pouring money in when the market is soaring and skipping investing when it's heading down. Eventually you'll get discouraged and give up – folk sadly buy the highs and sell the lows every day. Fall for this trap and you’ll end up like most Kiwi’s – nearly broke at retirement!
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