Earn more by taking advantage of compound interest

Earn more by taking advantage of compound interest

Earning more means getting paid more. We usually think that others should pay us more if we want to earn more. But this is not always true: we can earn more even if we pay ourselves more, and not the others.

It is a fundamental principle which is the basis of the financial success, first disclosed in 1926 by George Samuel Clason through his book entitled The richest man in Babylon, a great motivational classic (I also talk about it in the article in which I reviewed i 5 best motivational classics).

Il principle provides that a part of what you earn should become own so that you do keep up. By setting aside at least 10% of what you earn - and making that money inaccessible to ordinary and possibly extraordinary expenses - it is possible to increase this quantity exponentially over time. Considering any investments, thanks to the power of compound investment, the amount saved / invested - over the years - can become important. Many people manage, in fact, to earn more and build their wealth by paying for themselves in the first place. It is a true and effective principle today as it was in 1926.

Yet, as easy as this 10% formula is, people are not very reluctant to listen to it and apply it. This is because usually you are looking for tricks to get rich quick, and you do not have a medium to long term vision. Having a long-term investment plan instead represents a solid foundation on which to build one's own economic stability. And you can start earning more by paying yourself first starting today. The sooner you start, the faster you will build your financial success.

Earn more through the power of compound interest

To earn more you can take advantage of compound interest. Here's how it works: if you invest € 1.000 at 5% interest, you will earn € 50 in interest and at the end of the first year you will have a total investment of € 1.050. If you leave both the initial investment and the interest earned in the current account, the following year you will receive an interest of 5% on 1.050 euros, or 52,50. The third year you will earn 5% on 1.102,50, and so on. At this rate, within 15-30 years your money will it will transform into an amount well above the amount initially invested. But exactly how much does the invested capital grow? The Italian mathematician Luca Pacioli explained this in the XNUMXth century: any capital doubles in a number of years equal to 72 divided by the interest rate. Returning to our example: if the interest is at 5% per year, divide 72 by 5; which is 14,4, ie in 14 years and 4 months the capital is doubled. The earlier you start the bigger the result, as you will have more time for the interest you capitalize to produce its powerful magic. Start saving and investing for your future now, even if you don't have a large sum. There is no need for you to have an extra amount of money. You can start with any amount.

Compound Interest is the eighth natural wonder of the world and the most powerful thing I've ever stumbled upon.

Albert Einstein

Earn more by making savings and investment a priority

If you want earn more by paying yourself first, you must make saving and investing a central part of your financial management, like the payment of the loan. Get used to saving a fixed percentage (at least 10%) of your monthly income e invest it in a special savings account that you undertake not to touch. Ideally, this step would be automatic, such as a fixed monthly deduction on your paycheck. The automatism will ensure that you don't have to rely on your self-discipline and your saving ability will not be affected by your mood, domestic emergencies or anything else. Keep increasing that account until you have saved enough to invest the accumulated sum in bonds, a mutual fund or real estate. (spending money on rent without building any assets is really a waste). Let your investments build your wealth over time, and make an effort to live with what's left over after you pay yourself. If you want to spend, try to earn more to afford it. But never reach into savings to finance a more ambitious lifestyle. The ideal would be that your investments grow to the point where you could live on interest, if necessary. Only then will you really be financially autonomous and free.

If you want to earn more you have to create assets rather than passives. Rather than spending all the money you earn making someone else rich, invest it in assets that generate more income (stocks, bonds, real estate, gold, etc.). Then when your money starts to grow, educate yourself further about the best way to invest your money. Always stay informed about news about investment opportunities and remember to protect what's yours through a good insurance policy. Don't blindly trust who will manage your money, but always try to improve your financial education. This will make you a person financially prepared e ready to get rich.

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