Achieving personal financial freedom is a challenge. You either have to be a genius with a mind for business. Or you have to be disciplined for years and years, working tirelessly towards your goals. And herein lies the problem: most people give up just before they start winning.
Personal finances are deceptive. Often you struggle for many years with no money whatsoever, and then, suddenly, you reach a point where things take off. It can be a long journey, but once you hit “the knee of the curve,” you soon find that your wealth starts multiplying.
Getting to that point in one piece psychologically, though, is a challenge. You almost always have to make deep and long-lasting sacrifices in your struggle for financial freedom that makes a real difference to your quality of life. For some, that might mean working evenings and weekends, while for others, it could be giving up on having children.
The cost of financial success for the average person can be high, and the rewards small – at least at the beginning. For this reason, a lot of people wind up quitting before getting to enjoy the fruits of their labour. They give up before their investments get going, depriving them of a future of riches.
The Magic Of Compound Interest
The reason most people never get to see the fruits of all their hard work is that they never take advantage of compound interest – the most potent force in the world.
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Compound interest is a semi-magical concept in finance. It’s the idea that absolute increases in your net worth go up over time. So, for instance, in year one, you might have $10,000 invested in companies around the world, yielding ten percent return. In year two, therefore, you have $11,000 – your wealth goes up by $1,000. If you make a 10 percent return in year two as well, your net worth rises to $12,100 – or $1,100 more than the year before. Over time, this process continues, and eventually, you wind up with a massive pile of cash that is growing faster than you can count it.
Compound interest is an accelerating phenomenon. The longer you stick in the game, the higher the incremental rewards become. Invest for thirty years straight, and you can become extraordinarily wealthy indeed.
The Importance Of Seed Capital
Seed capital is just a pile of cash you start with before you make any investments. It is, however, the most important. The money that you have today is worth more than the money you earn tomorrow. Thus, if you’re interested in building personal financial stability, then you need to do whatever you can today to collect money to put into investments.
Lump sums can come from all sorts of places.
One of the most popular ways of getting a cash injection is to hire a personal injury lawyer. These professionals could help you get the money you deserve if somebody harmed you. A few thousand dollars (or more) obtained this way can make all the difference in the world, especially if you’re off work due to injury.
You can also use lump sums from inheritance, life insurance payouts, lottery wins, selling your car, or even selling your property and temporarily downsizing or renting a room. The key here is to get a big wad of cash early so that you have something that will build over time.
Low Income Is Not The Only Impediment To Wealth
The majority of people believe that the only way to win with their personal finances is to somehow get a six-figure income, but that isn’t the ONLY way to build large amounts of wealth. Time is another important component. The longer that you can make your investments, the bigger they’ll become.
Time is essentially what is driving the magic of compound interest. The longer you leave your money invested, the more time companies have to make it grow, and the bigger your pile of wealth becomes.
For this reason, starting early on in your life is crucial. If you can put money away straight after you leave education, you can begin to build fabulous wealth into your forties and fifties – way more than you imagine is possible. Remember, compound interest keeps adding bigger and bigger chunks to your wealth over time, increasing your wealth faster and faster, the bigger the pile of assets you have.
The key takeaway here is never to quit before you win. Often you’re just a few years away from getting the lifestyle that you want.
What are your financial goals? Comment below! 🙂
