Category: Finance

Compound interest – thought about in another way

“All the benefits in life come from compound interest — money, relationships, habits — anything of importance.” – Naval Ravikandt

If you want to look like Arnold Schwarzenegger, you’re not just going to work out really hard for three months then have the body of a champion bodybuilder. You have to put in the time and effort for the long haul. The same applies to nearly anything in life. To become a master of anything, you must treat your training (and habits) as if you are running a marathon. Improve little by little. Improve just 1% consistently, working towards your goals everyday and you will go further than most of those around you. If you want to write a book, start by writing a chapter, a paragraph, a single sentence. Every journey of 1,000 miles begins with a single step.

If you want to be the best mom/dad, it’s not about taking your children on that one vacation each year and then not really seeing them throughout the rest of the year. Instead, it’s about your daily interactions with them.

It’s not what you do once, but it’s the “compound interest” from your efforts over time that will make you rich.

The importance of being in a position of financial strength

Are you in a position of financial strength?​
Are you in a position of financial strength?

Always aim to set yourself up to not have debt so that you minimize your risk of making stupid financial decisions. When you’re desperate, you feel you have to take drastic actions. Most of the time, those drastic actions are long shots to actually pay off (a most like playing the lottery). You get blinded by “the opportunity” and gamble with your money, hoping for the big payoff. But in reality, you would be far better served making small, rapid improvements with your money habits.

So how do you set yourself up for success? First, go back and look and your bank statements for the past 3 months. Print them out. Figure out where you’re spending your money…you’ll have necessary expenses (housing, food, transportation, insurance, etc) and unnecessary expenses (“fun money”). What can you cut out to bring your spending down and your savings rate up? And out of your necessary expenses, what is really necessary? Yes you need a place to live, but are you living in a place that is making you house poor? Did you purchase a car with expensive payments? Are you going out to eat every night instead of making a healthy (and cheap) dinner at home? When you complete this exercise, you’ll see just how much extra you’re draining from your bank account. From there, it’s up to you to make a change.