Tag: 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.

On waiting…

We all should practice the art of waiting more. We have become so used to this “microwave world,” where we can have nearly anything we want instantaneously.

Don’t want to sit through commercials? Hit skip ads on YouTube.

Can’t find anything good on tv? Go to your favorite streaming service.

Bored? Scroll mindlessly on social media.

The list goes on and on. It’s even that easy to buy something we want. Don’t get me wrong, I love Amazon because it’s so convenient, but that’s their business model (and they’re very good at it). They make it so convenient that you don’t think twice about buying an item you literally just discovered.

But we would be better served in the long run if we waited to get that “thing.” Try waiting for 48 hours before you buy it. Would you still want it? If you think you still want it, go to the store to buy it. Is it worth the inconvenience of you getting your shoes on, driving into town, waiting in line, and then paying for it? And what if you only allowed yourself to pay in cash? That way, if you don’t have the money right then and there (both in your bank account and physically, in your hand), you can’t buy it on credit. It feels different when you hand over some money and get less in return (as opposed to handing plastic over and getting the same piece of plastic returned to you). Psychologically, it feels more painful, even though you’re paying the same amount for the same item. While I like to optimize every aspect of my life (working on efficiency and convenience), it is important to remember we should focus on effectiveness over efficiency. Just because something is easy doesn’t make it better…

And if you can teach yourself to not always get what you want, when you want it, you will be better off in the long run. Better off financially (not spending money), mentally (building up a resiliency so when things don’t go your way, you’ll be able to cope better), and possibly better off spiritually (giving you more time/money to focus on loved ones and the environment around you, instead of focusing on material objects to eventually go in the trash).

So, how long can you wait before you get that next “must have” item? Don’t let lifestyle creep take over. Don’t let your inner child take over (“I need this toy now!”)…Practice patience. Practice waiting. Practice being fiscally responsible. You will be better off for it.

Consumption

Consume less, save more. This will help not only with your financial success but with your happiness and with helping to protect the earth.

Instead of mindlessly spending money on things that sometimes bring fleeting happiness, take some time to think about what you’re buying and why you’re buying it. Get rid of subscriptions if you don’t use them. Get out of habit spending and avoid lifestyle creep when you can. This will help you financially, but it will also allow you to enjoy things more as they come into your life. Your life will be less cluttered and, therefore, allow you to see clearly. And when you have more money in your bank account, you can spend money on things you’re actually excited about or give money to charities/causes you believe in. Lastly, if you buy less products/live a minimalist lifestyle, you’ll contribute less to the wasting of resources and the increased pollution of the earth.

Compartmentalizing your life

Start your morning by energizing each part of your life – spiritual, physical, mental, emotional/relational, financial, and career. Take time to be grateful for what you have presently, the past experiences that have gotten you to where you are, and the future that lies ahead. Visualize success in each of those areas, whatever that means to you. Then plan your day out and see how you can get closer to achieving success in those areas. If you don’t have a plan, then it will be really hard to get what you want.