We’re all thrust into this thing called life without a real road map on how to get financially independent. What we’re taught in school are the fundamentals of personal growth and are then set free.
Johnny, if you’re good in math, then you should become an engineer. Nurse Sally, it’s found that you have a strong aptitude in caring for others.
What’s not taught is how to enjoy the good things that life has to offer, or conversely, needing to constantly worry about our finances, not being told that the majority of us will grow old, poor.
We live in a paycheck to paycheck society, we never seem to get ahead or be able to save for that rainy day. So things need to change but how can we. Where when and how do we begin our quest for financial independence and gain the security that we need.
The most logical step before we grow old is to step back and foster a plan, take a breath while contemplating the distinct differences between those who have, and those who don’t.
Knowing the differences of those who achieve, and the general laymen among us. What is it that these successful wealthy individuals do differently. What are the principles which they adhere to, the process to create their personal wealth.
The Principles Of Wealth
There’s no need to be a financial genius to decipher what these principles are, which those who have created independence for themselves use. A calculator and discipline will suffice.
It appears once we find the process, we can then work the numbers ourselves to our advantage, so we can then just duplicate it ourselves.
So listed are a few of the wealth building principles and techniques which has stood the test of time, as revealed by those who are more successful and wealthy than you or I.
These core concepts, a set of easy to follow numbers and concepts, have been extensively crunched and then placed into motion by those who’ve already created enormous personal wealth.
Three Proven Methods Of Financial Independence
1.) The Magical Formula Of Compound Interest
Some, the geniuses and giants of finance have described the growth of compounding interest as, the “Eighth Wonder of the World.”
When numbers are compounding, it’s effect is also referred to as “Rate and Time.” This because the longer that the time expires, and the higher that the growth rate escalates, the greater that the effects of compounding becomes.
How compounding works is it allows the interest which is earned gets added, gets compounded to the original initial investment, and then the next series of interest earned is then calculated on the sum of the two, and the addition continues.
So what happens is that the interest is then earned upon the interest. What compounding offers is the effect of being able to exponentially increasing the value of the initial investment.
Compounding And The Rule Of 72 – The concept is simple which words can’t do it justice. What the “Rule Of 72” equates to is the number of years (or months) which it takes for your money to double itself, 72 being divided by the interest rate.
• You have $1000.00 which is invested at 10% interest per year (or month)
• So if you’re wondering how many years (months) it takes for your money to double to $2000.00, at 10%
• 7.2 Years or (7.2 months). 72 divided by 10 (10%) = 7.2
2.) The Investment Of Residential Real Estate
One of the biggest traditional methods of acquiring wealth where the statistics prove that over 95% of the millionaires of the world have made their wealth, is through real estate property ownership.
To most it’s no surprise since they’re not making any more land and people need a place to live. At any given time, it’s estimated that there’s at least 1/3 of the population who are renting. So property is a necessity, it can never lose fashion.
As the population increases, as more young people are being released into the general public, they all need some type of shelter. So the core basic law of supply and demand trips into effect, ensuring that prices will rise under most economic conditions.
Financial institutions consider property ownership to be one of the most stable investments, and since they’ll usually loan you the majority of its value, this leads towards the final principle.
3.) Using Other Peoples Money (OPM) Which Isn’t Yours
Using Other People’s Money is important because first off, it’s not yours. The key word and method becomes “leverage,” to obtain greater results. The word leverage is derived from “lever.”
When it comes to physics, a small amount of force which is applied on one end of the lever, is able to produce exponential force much greater than what’s initially exerted. What the lever does is it has the ability of multiplying the power that’s exerted.
Leverage Financing – When it comes to investing, leveraging is when you deposit a small portion of your own capital, say 10% on a $300,000.00 home, and then borrow the other 90% percent.
The capital growth which you benefit from is calculated on the entire $300,000.00, and not the $30,000.00 which you personally contributed, which has the effect of substantially multiplying your capital gain.
Leveraging allows you to purchase and own a greater more expensive piece of property than if you were just using your own money. Controlling any type of asset which has a higher value means that the compounding growth has a lot more to work with.
As a result, your net worth will increase that much quicker. Leveraging multiple properties allows you to build an investment portfolio a lot quicker than otherwise possible.