Lesson 31: Goal-Setting, Part 16, The Power of Compounding
Reading assignment
Richard Russell, “Rich Man, Poor Man.” Download here.
He includes a table on the effects of compounding. If at age 19 you start to save $2,000 annually, and you make 10% compounded, and you reinvest the earnings, you can stop investing after eight years.
At that point, another person starts saving just as much a year — $2,000 — and he keeps on investing $2,000 a year to age 65. He will never catch up to the first investor.
Incredible, isn’t it? See for yourself.
That is what seven years does for you, if you start soon enough.
Has anyone told you about this before?
It is not possible to get 10% by means of passive investments. But in a business, you can. That is why you should start a business: to get compounding on your side. Reinvest your profits. That is the key to success in business. Do not withdraw principal. Let it build.
Before you watch the screencast for lesson 31, I want to make sure you understand the power of compound growth. In lesson 30, I asked you to go through an exercise. The exercise was this: what does it cost to watch free television. I asked you to estimate the time you spend watching TV each week. Then I asked you to calculate the lifetime expense of your TV watching: 45 years at $20/hour at a 10% rate of profit in your business. Instead of watching TV, you work these extra hours. You leave the money in the business.
One student did the exercise, but he (or maybe she) dd not correctly use the calculator I recommended. The student determined that he would forfeit $127,000. This figure was incorrect.
Here is a short screencast on what the student would in fact forfeit because of his TV watching.
Now watch today’s lesson.