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?
Does that $30,000 kitchen renovation really make you that much happier? Did you need granite countertops, new stainless steel appliances, built-in double ovens and recessed ceiling lighting?
Alternately, would new modern cabinetry with a standard countertop at a tenth of the price have been sufficient?
What about that $30,000 pool install? Did it need to be installed in-ground? Did you also need to replace your patio and extend it with high-end interlocking stone?
Alternately would an above ground pool that was a tenth the price have been sufficient?
Do these “luxurious” upgrades really bring you increased sustainable happiness or are you a victim to consumerism, short-term lust for higher-end physical possessions and, of course, trying to keep up with the Joneses.
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:
By the end of 2011, I had completed nine years of real estate investment courses. Acquisition, cashflow, buy & hold, flipping, landlording, rent to own, taxation law… the list goes on and on.
Despite my educational knowledge, I still had not yet purchased a single investment property. Even though I had successfully run my own company for the previous fifteen years with positive cashflow in each and every year, I was still afraid to take the plunge.
I kept asking myself “How could I take so many calculated risks but be afraid to take this one?” I was stuck in a state of fear commonly coined as “analysis paralysis”. I would look for the perfect deal but before I would pull the trigger I’d make up excuses as to why each potential deal wouldn’t work. The truth is there’s no such thing as a perfect deal. The human mind can be our own worst enemy and I was battling against nobody other than myself. Trying to psyche myself into taking the next step, but for some reason I kept backing down, convincing myself as to why each opportunity wasn’t optimal.
In mid-2012 I booked vacation. I decided to stay home and relax. The previous two years’ vacation was spent repairing the house after extensive water damage which had nearly depleted all of my savings. It was early afternoon and I grabbed an ice cold Corona from the fridge and went to sit in the yard and do some reading. As I hunched down in my lounge chair I continued to read my latest real estate investment book. My attention was drifting in and out and I found myself reading and re-reading the materials. I felt frustration growing within me as I thought to myself “I know this s&%t. I’ve read it a hundred times in other books.” I stood up and blurted “That’s it! I’m going to buy a property or I’m going to stop reading about real estate investing.” That was the catalyst, the last nudge through the barrier of procrastination, the trigger required to break through my analysis paralysis.
Earlier this week I had a meeting with one of the local startups that I am mentoring. Over the last year his company’s bank account has been reaping the rewards of their hard work and so he has been considering his best option to invest the returns from his compounding successes.
Knowing that I am an active real estate investor he wanted to learn about how real estate makes money. He had performed a number of cashflow analyses, but, was failing to find lucrative returns. I could sense his frustration mounting in each additional word that he was saying. “The best cashflow I’ve been able to find is approximately 8% on a real estate investment and that’s just… well average”. He frowned. I smiled and excitedly said “That’s fantastic, you should put in an offer, do your due diligence and buy this property if everything checks out.”
Several times a month I’m asked by individuals for advice on buying a house in Ottawa, Ontario or Gatineau, Quebec. While I will refrain from commenting on the personal elements (e.g. politics, etc.) as they are subjective, I’ve put together a financial analysis for those who wish to consider.
In conclusion, unless an individual earns more than $150,000 / year, from a financial perspective, it’s still significantly financially beneficial to live in Gatineau, Quebec vs. Ottawa, Ontario.
Here’s the facts. For this assessment we’ll use the salary of $75,000… (reference for calculations: http://bit.ly/RLVw04)
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!
Last week one of my friends was talking to me about her weekend filled with her perceived much needed bout of “retail therapy”. She talked about all the new clothes and shoes, and even more clothes that she bought! She upgraded her iPhone to the latest version and she even managed to go out to both lunch and dinner twice!
We both know what happened after. I completely lost it! “Are you nuts?!” I exclaimed, “I cannot believe my ears!”. She smiled and retorted in sarcasm, “I know… I know… I went a little overboard, but I work hard so I deserve it!”. Ironies abound, what she didn’t realize was she was about to start working even harder just to cover the costs of all of these material possessions. Believe me, I was once in this trap for several years of my life… I know this situation all too well.
After some coaxing I convinced her to reveal the details of her purchases over the weekend so that I can create a case study to present back to her (I got her permission to post it to my blog as well). I just couldn’t take it that she was about to set herself up for decades of suffering and I had to at least try to pull her out of the trap of first-world slavery (self-inflicted by the lust for unnecessary physical possessions).