We are all thrust into this thing called life, without a real road map on how to get financially independent. What we’re taught in school are the fundamentals of personal growth, and then set free into the wild life out there. The strings are cut and we are forced to survive.
Johnny, if you’re good in math, then you should become an engineer or accountant. Sally, you become a nurse because you have a strong aptitude caring for others.
What’s not taught is how to enjoy the good things life has to offer, or conversely, some need to constantly worry about their finances.
We are not warned the majority of us will grow old, desolate, broke and end up in an old age home alone.
Saving For Another Day
We live in a paycheck to paycheck society. We never seem to get ahead financially, or be able to save for that proverbial rainy day we’re warned about.
So things need to change. Where, when and how do we begin to our gain our financial independence, gain the security we need.
The most logical step before we grow old is to step back and foster a plan. Take a breath while contemplating the distinct differences between those who have, and those who don’t have.
To know the difference between those who achieve, and the general laymen among us. What is it these successful wealthy individuals do differently.
What are the principles which they adhere to, the process to create their own personal wealth.
The Three Principles Of Wealth
There’s no need to be a financial genius to decipher what these principles are. Those who have created independence for themselves know how. A calculator and logic will suffice.
It appears once we learn the process, we can work the numbers ourselves to our advantage, then just duplicate the exercise.
Listed are the most effective wealth building principles which has stood the test of time, as revealed by those who are more successful and wealthier than you or I.
These core concepts, a set of easy to follow numbers and instructions, have been extensively crunched and placed into motion by those who’ve created enormous personal wealth.
1.) The Magical Formula Of Compound Interest
Some, the geniuses and giants of finance have described the growth of compounding interest, as the “Eighth Wonder of the World.”
When numbers are compounding, it’s effect is also referred to as “Rate and Time.”
The reason for this is because the longer time expires, and the higher the growth rate escalates, the greater the effects of compounding becomes.
How compounding works, is it allows the interest that’s earned gets “added,” gets compounded to the original initial investment.
Then the next series of interest earned is calculated on the sum of the two… and the addition continues. What happens is the interest is then earned upon the interest.
What compounding provides, is the effect of being able to exponentially increase the value of the initial investment.
Compounding And The Rule Of 72 – The concept is simple, but the words to describe it can’t do it justice.
What the “Rule Of 72” equates to, is the number of years (or months) it takes for your money to double itself. The 72 is divided by the interest rate.
• You have $1000.00 which is invested at 10% interest per year (or month)
• If you’re wondering how many years or (months) it takes for your money to double to $2000.00, at 10%, then use the “Rule of 72”
• The answer is 7.2 Years or (7.2 months). 72 divided by 10 (10%) = 7.2
2.) The Investment Of Residential Real Estate (Or Virtual Real Estate)
One of the biggest traditional methods of acquiring wealth, where statistics prove over 95% of the millionaires of the world have made their wealth, is through real estate property ownership.
To most, it’s no surprise since they’re not making any more land and people need a place to live.
At any given time, it’s estimated there’s at least 1/3 of the population in urban areas who are renting.
So real estate is a necessity, it can rarely lose depreciation.
As the population increases, as more young people are released into the general public, they all need some type of shelter.
So the core basic law of supply and demand goes into effect, ensuring prices will rise under most economic conditions.
Financial institutions consider property ownership to be one of the most stable of investments. So they will loan you the majority of its value with a small down payment.
3.) Taking Advantage Of Other Peoples Money (OPM)
Using Other People’s Money is advantageous, because first off, it’s not your money you could spend or invest.
The key word and method becomes “leverage,” to obtain greater profitable results. The word leverage is derived from “lever.”
When it comes to physics, a small amount of force which is applied on one end of the lever, is able to produce exponential force much greater than what’s initially exerted.
What the lever does, is it has the ability of multiplying the power that’s exerted.
Leverage Financing – When it comes to investing, leveraging is when you deposit a small portion of your own capital, say 10% on a $300,000.00 home, and then borrow the other 90% percent.
The capital growth you benefit from is calculated on the entire $300,000.00, and not the $30,000.00 you personally contributed, which has the effect of substantially multiplying your capital gain.
Leveraging allows you to purchase and own a greater more expensive piece of property, than if you were to just use your own money.
Controlling any type of asset which has a higher value, means the compounding growth has a lot more to work with.
As a result, your net worth will increase that much quicker. Leveraging multiple properties allows you to build an investment portfolio, a lot quicker than otherwise possible.