A famous man once said, “Compound interest is the eighth wonder of the world… He who understands it, earns it, and he who doesn't, pays it”, that man was Albert Einstein.
As most people know, compound interest is interest added to the principal so that the added interest also earns interest from then on. This addition of interest to the principal is called compounding. The basic elements of compound interest are: an interest rate, a frequency of compounding like monthly, quarterly, annually, and we can’t forget the most important factor, which is time. The one thing that can not be replaced in the equation of compounding is time. Time is our most valuable resource when it comes to making the magic of compound interest work, it is irreplaceable… We may recall the past and imagine the future but as we age time seems to speed up as the years go by.
It’s no wonder while being on the job for forty or fifty years, one might feel a little like a hamster on a treadmill, with some possible resentment of only getting zero point nothing at the bank. It’s really about just getting educated on some things and shifting things around a little. The fact is, I can show anyone how to win the three major financial battles and this can make a dramatic difference in the outcome of their situation?,.. it’s what we do.
My firm represents several of the highest rated financial companies with billions of dollars of assets and some that are over a hundred years old. We teach people about money… how it works… and how to make it work better for anyone. When someone asks me what I do, I tell them, “We send money into the future.” Specifically, our mission is to help people become financially independent. What that means is that the interest one earns on the money one has put away replaces what they would normally earn working. They may choose to work at that point, but they wouldn’t have to, and that is financial independence. That’s what we do; wouldn’t you like to know a few shortcuts?
What I want to do is touch on some of today’s challenges and then talk about solutions. In the recent past, some of our incomes have gone up but for others their incomes have not even kept up with the rising cost of living. So what happens to some when money is tight they tend to go into debt and with less financial security and poor saving habits some problems start to develop.
My point is, out of a hundred people turning age sixty five today, how many of them do you think are financially independent? Forty percent? Twenty? One might be surprised to know that age at age sixty five only seven out of a hundred people are successful at providing for themselves financially, and having a choice of if they want to work or not. The seven percent did not get there by mistake; it took a pointed effort and some self discipline.
What about the 93%? We see them working at Home Depot, Wal-mart, and other places. They are simply unable to stop working because their living expenses have kept rising, out pacing their savings until in many cases there’s nothing left. What’s their situation? Well, the majority of them are still working and many rely on family and charity. Most of these folks had good jobs making good money, they didn’t plan to fail, they just failed to plan. In order to get one self in line to be among the seven percent we must win three major financial battles.
As far as investing, we know with the stock market or mutual funds, at times we might a get higher return but then we’ll sometimes lose ground, and our valuable time is lost and can never be replaced. Some have a 401k where they work and really have no clue how it works except for the ones who lost half of their money in 2002 and again in 2008.
Now if people are saving, then where are they saving? Banks and credit unions, where they are not even getting 1%. So, one can easily see a big part of the problem is that they are losing purchasing power. The cost of living with inflation averaging 4.5% is out pacing the return on their savings. The solution is a better rate of return…
Have you heard of the rule of 72? It states that if one divides the interest rate into the number 72, it will tell you how many years it takes for the money to double. So at 6% the money doubles every 12 years, and at 8% it doubles every 9 years, and at 12% it doubles every 6 years, so it makes a big difference. Here’s an example. Let’s say one has $100 in an account that earns 4%. If they leave it and it grows at 4% in 18 years it will double to $200. What happens in another 18 years at 4%? Right, it doubles again to $400. Here’s the problem… Do we think that thirty six years from now that $400 will buy what $100 does now? No...
But we can’t just win the rate of return battle and forget about taxes. In fact, I’m going to show an example… Let’s say 30 years ago there was a guy that was 30 years of age and he wanted to have a million dollars when he was 60. Now, he didn’t understand any of this, so he just goes into the bank and says, “Mr. Banker, what do I need to save, every month for 30 years, so that I can have 1 million dollars?” Well the banker figured it out and said, “What you need to do is put away exactly $1,639.29 a month for 30 years at 5% and you will get your million. Well, he was totally discouraged and he left the bank and now he’s working at Wal-Mart, right?
Now what if I could have shown him how to win the rate of return and the tax battle? Starting with the rate of return, let’s say he averaged 10% instead of 5%; it takes the number down to $900 a month. That’s $700 less but what if he puts his money where it’s not taxed while it grows? So with tax deferral its $438 a month. Then the million dollar question is,.. Where can I find a safe place for my money where I can get a decent rate of return and avoid taxes?...
Most everyone has heard the expression, “Time is money?” When it comes to our financial future, time is money. Just as there have been advances in other sectors of our economy, there have been some big changes and improvements in our field of expertise as well. If you would like to visit, and go through the fact finding process we can suggest valuable strategies that will help you reach your goals and secure your vision of the future.
Twenty years ago individuals could rely on traditional fixed interest options to provide reliable growth and income. Today you may not be satisfied with the rates that are available, especially after they take out their administrative costs, commissions, and operating expenses.