One of the most important lessons in investing is to learn about the power of compounding. In many cases, investing early and regularly can make all of the difference in the world.
Let’s take look at a chart that shows the impact of investing $100,000 by age 30 vs. investing $200,000 by age 45 (assuming 8% average return each year). As you can see, even though the second individual invested an additional $100,000, they will have nearly $600,000 less at the age of 65… that’s a breathtaking difference!
Investing $100,000 at 30 years old vs. investing $200,000 at 45 years old
But what if you haven’t had the luxury of starting to invest early? What do you do then?
The first step is to consider what area interests you the most; it’s always easier to choose something that you have some degree of interest in because you will be more likely to best absorb the materials and take action.
If you’re a beginner and not sure what area interests you most I recommend you read one of the following blogs I’ve written that are geared for beginners on these topics:
A few months ago I was asked a very interesting question by one of my financial freedom students. She asked “If you could only give me one single piece of advice, what would it be?”
I sat there quietly pondering my response for what was likely several minutes as she looked on waiting. In my mind I was considering the path that I’ve taken towards financial freedom. I took time to contemplate the challenges, consider the obstacles and reflect upon the successes along the way.
Alas I broke the silence with my response, “Invest now“.
“That’s it?” she blurted out, “that’s the best advice you can give me?”
Over the last few years I’ve been blessed with the opportunity to mentor dozens of small business owners. Helping entrepreneurs to monetize their passions is extremely exciting. I learn a lot about various industries while helping entrepreneurs leverage their strengths and recognize their weaknesses.
One of the most troubling weaknesses that I’ve been helping entrepreneurs with is their lack of personal financial awareness. Most entrepreneurs have very little savings and no idea how to get started. This creates a significant risk for the majority of our small businesses, which more than 77% of all businesses fail due to lack of financial responsibility and awareness*.
Why should I start now?
Every business owner I’ve ever met has numerous tales of seemingly insurmountable challenges. These challenges typically share a common theme, one of a financial nature. This is one of the most difficult challenges to deal with – it causes stress, challenges…
Today I’m going to aggravate even more individuals than I typically do, because frankly I have a lot of family and friends who make their living selling mutual funds. By the afternoon I’m willing to bet that I’ll have a dozen negative emails with adverse reactions, snarky comments and excuses identifying why the items I’ve outlined in this article are invalid and why my approach is “too risky”. A warning in advance to financial advisors, I won’t respond to your comments, they are biased and I know my article is risking your cashflow for the benefit of your coveted customers. It’s unfortunate that average investors will be persuaded to listen to such rhetoric because well, simply put – it’s complete bullshit!
Okay so here’s a picture-perfect scenario. This is you. You buy mutual funds. You have for years. You are very happy with the returns. As you can see, even though it’s unlikely, I’ve chosen the best case scenario for the sake of this explanation because there are a hell of a lot of naysayers out there (usually financial advisors in this instance because I’m cutting their commissions out of the equation). Now; let’s assume that you’ve chosen a high quality mutual fund that is managed perfectly, with low fees, consistently high returns and is executed entirely ethically – nobody is generating a single dollar of additional revenue beyond the managed fund’s fee of 2.9%. Sounds like a dream come true, right?
Let’s translate this into a figure that will scorch an image into your mind that will hopefully transform your perception of the importance of saving and power investing. Let’s talk in terms of something that keeps us away from doing what we want, when we want to. Yes, that’s right… work!
Wouldn’t you love to work for yourself? Are you afraid to quit your job? Surprisingly, you don’t have to! You don’t even have to work any additional hours! What am I talking about then? It’s simple. Start saving today!
Alright… at this point I’ve lost a solid percentage of my readers, individuals who simply aren’t willing to sacrifice their own “perceived happiness” just to save. But hold up one minute there… what exactly is a sacrifice?
When I used to have to wait to purchase something I thought of it as a sacrifice as well, but as time has went on and wisdom has slowly creeped into my head I now realized that I had a threatening disease known as first-world slavery and that making the actual purchase is the sacrifice. What?! Am I completely nuts? No, in fact I’m not!
Recover from these words, regain your composure and then continue reading my blog please. It’s okay… you can do it.
What if I told you that there is a legal way to pay less tax every year? What if I told you that there was also a way to retire earlier and with more money than you would have if you continued down the path you’re on right now? Would you take advantage of this? Of course you would! Well then keep reading and let’s get started…
Almost every individual has a tough time saving. In fact, almost half of all individuals are living paycheck to paycheck… and sadly, this includes thousands of people making $100,000+ salaries! Terrifying!
Over the past several months I’ve had dozens of discussions with family, friends and colleagues surrounding various topics related to investing in order to achieve financial freedom. These discussions have blurred a number of different topics – What are the best investments? What exactly is financial freedom? How do I approach an opportunity? How do I get over my fears? And the list goes on.
Today I’d like to cover one of the most important topics to achieving financial freedom. This topic in particular revealed both significant discomfort and resistance from the majority of my colleagues during our conversations – saving for financial freedom!
Saving for financial freedom isn’t a new concept. It’s not even a complicated one, it’s simple, spend less than you earn and save the rest; optimally save as much as you can. After all, if you aren’t capable of saving, you won’t have very much money to invest towards achieving your financial freedom! Ironically, in almost every instance where the topic was brought up, the reactionary comment was something along the lines of “I can’t save any more money; I’m already barely getting by!”