If you ever seek motivation in life, look no further than the power of compounding—everything we do in life compounds, either positively or negatively.
“The Compound Effect” by Darren Hardy explores how we can exploit compounding to improve anything we want in our lives.
The more things we put into motion, the more chances we have to leverage this power. This is why I write daily, collect dividends, and keep all my houses.
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The power of financial compounding. Perhaps the most used term in finance is compound interest—your money earns money.
In turn, your new money earns more money, etc. The best way to get in on this compounding is by investing in interest via bonds and dividends via stocks.
At last, things are not as easy as they seem. I would love to say we just turned 18 and started earning compound interest, but there is one major hurdle—debt.
The destruction of financial compounding. Before we can even breathe outside of our parents’ homes, we are in debt. Nothing we do in school prepares us for the real financial world outside of high school or college.
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Credit cards are the primary source of pain early in life. These anchors use the power of compounding against you.
That’s why it’s so hard to pay off your credit cards. Every month, your credit card balance morphs into a new balance. And eventually, this new balance creates another balance. It feels like the movie “Gremlins.”
Why do we get into credit card debt? However, credit cards are not the actual problem—the underlying problem is a poor financial mindset.
Indeed, as you begin to study money, finances, spending, and psychology, you’ll find that our minds are the problem.
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We all have “issues” with money that can stem from how our parents raised us, our own experiences, and external factors like social media.
For example, we may see a 20-year-old YouTuber driving a Mercedes. This causes a need for us to purchase a car far outside of our price range.
Part of the compounding process is learning how to combat this destructive behavior. We must learn to “want” fewer things and “earn” more relationships of substance.
The compounding of the employee mindset. Another mindset that shackles us in debt is the employee mindset. They teach us we need a job to earn money.
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Yes, we all need a job to pay bills—I agree. However, a job is not a long-term solution to paying bills and living a meaningful life.
Jobs are just that—jobs. To become our true selves, we must create. We all have magical creative abilities that we need to exploit and grow. These abilities will compound as well.
Today, we can make money from our creations. We can sing, talk, write, produce, and record our way to success and fortune. Better yet, we can make a difference in someone else’s life. It’s a win-win.
“The Practice” by Seth Godin is my favorite book on creativity and passion. It’s our job to bring our creative pursuits to the world.
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Back to compounding interest. This all ties back to compounding interest. Once we get out of debt and start creating royalties, we will have excess cash flow.
We can use this cash to produce more cash. Instead of paying the credit card companies 10% interest, we can earn 10% interest by income investing.
There are much safer ways to earn interest than income investing. We can use high-yield savings accounts, certificates of deposit, and Series “I” Bonds to compound our wealth.
But I love the fun of income investing. It has changed my life in ways I am still discovering. Let’s take a quick look at my progress in dividend investing.
Don’t Gamble with Retirement 5
The power of dividends and income investing. I started my investing journey in June 2019 and have yet to look back.
I knew nothing about interest, dividends, royalties, or passive income. I learned the power of these terms by reading over 130 books over the next couple of years.
The chart above shows it all. You can see how fast the power of compounding works in real terms. But these numbers only tell part of the story.
Compounding your life. As you walk along your path to financial freedom, your education compounds, and the way you think changes.
You start to see things in a different light. You may change the restaurant you frequent. You then invest the difference in price to buy more dividend stocks.
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I kept my last cellphone for 5.5 years and invested the difference into income-producing assets. Now, I have enough in dividends to buy the phone I want.
You can start the compounding process once you walk along the path. You must shut out all the noise about new cars, fancy vacations, and private schools.
There is no better feeling than becoming financially free with your spouse. It’s also a way to strengthen your marriage by compounding your goals together.
Where do you start the compound interest journey? The best place to start is with your mindset. Once you have a clear view of who you are and what you want, you can create a path to achieve your desires.
Merry Debt-Free Christmas
My Middle-Class Investing 101 series (101, 102, 103, 104, 105, 106, 107) slowly walks you through the processes of building wealth.
It won’t happen overnight, but your wealth accumulation will begin to accelerate. It is similar to a snowball traveling downhill. As it travels, it gains speed and size—we can leverage the same principle.
Conclusion. Decisions, decisions, decisions. Who do you want to be in life? What do you want to achieve? Do you want to be financially free?
The toughest part about becoming financially free is being happy living below your means. Living below your means in America is a higher standard than in most of the world.
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We all need perspective in life. If we earn $50,000/year, we should live on $40,000—the other $10,000 we can use to invest in compound interest.
They say compounding is the 8th wonder of the world, and I wholeheartedly agree. Watching your money produce money is magical.
Watching your credit card debt accumulate is the exact opposite. Which way sounds better to you? I decided in June 2019 to set my family free. And I did. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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