The average person sees over 5,000 marketing messages a day. Almost all of it says the same thing: “Buy this and you’ll be happier, healthier, cooler or better looking.”
It’s always been this way, only now, the Internet and social media have amplified the frequency and intensity to a point where it’s inescapable, and a lot of it comes through the device we carry in our pocket.
When I was a teenager, I knew I was going to be rich, even though I had no idea how to get there.
My parents weren’t rich, our friends certainly weren’t rich and books on wealth were completely foreign to me.
It wasn’t ’til I reached my twenties that I met my first millionaire.
At about that time I also discovered the book, “Think and Grow Rich” by Napoleon Hill.
Those two events heralded the start of a lifetime practice of learning and experimenting.
Yet for everything I learned, one wealth principle stood the test of time. Well, two, actually.
But first, remember this.
The fact that you’re here reading this is an impossible fluke.
As statistics go, you shouldn’t be here.
I’ve written about it before but it bears repeating.
You’re a one-in-400-trillion chance.
Grasp this and it’ll change your frame of reference.
You’ll begin to understand three very important things:
- You’re incredibly fortunate to have a seat at the table.
- It’s just a game.
- You won’t be here for long.
From here, you can formulate your MITs (Most Important Things) and decide how much energy you devote to them — because the energy you ascribe to your MITs determines the success you have with each of them.
But if we’re talking only about money, the number one key to wealth is compound interest.
Invest early, invest regularly and compound all the returns.
And recognise that the returns happen like a hockey stick.
It takes time and patience, but once it accelerates, it goes ballistic.
Note that compounding also works against you — especially when management fees come into it.
Always go for the lowest fee structures you possibly can.
Look at Buffett’s wealth over the years, and you’ll understand the impact of compounding over time.
Sadly, most people lack the emotional intelligence or the patience to play the long game – even though the returns go crazy down the track.
The pigeon pair to compound interest is leverage — using finance to accumulate investment-grade assets and multiplying the base upon which you compound returns are generated.
It takes a long time to get rich with your own money but with the intelligent use of OPM (Other People’s Money) — the bank’s money — you can achieve incredible results.
For example, with stocks and shares, most people can only use their own money — $50k buys you $50k worth of stock.
If that parcel grows by 10%, you gross $5k.
But $50k will also buy you at least $200k worth of real estate.
When that goes up 10%, you’ve grossed $20k instead of $5k. That’s a 40% gross return on your $50k instead of $10%.
See the difference?
Understanding and applying these two principles are fundamental to building real financial wealth. But like all great principles, they reward diligence and patience — two things most people lack.
As Buffett likes to say, “The stock market is a device for transferring money from the impatient to the patient.”
That principle doesn’t just apply to the stock market, but real estate, fine art, collectible cars — just about all forms of investment.
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