Binary Dollar: Compound Interest

Binary Dollar: Compound Interest: Rick and Harper

Cartoon with a good explaination of how compound interest works.

Basically, they show why it is so important to invest early.  Compound interest means that someone who invests an amount for 10 years will have more at the end of 30 years than someone who started investing the same amount 10 years later.

This is why it is so important to invest as you start you first job, and even before then.

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decide why you want to be rich

I've been doing alot of thinking on this lately.  Why do I want to be rich?  What the point of all this?  Just about everyone claims they would like to be rich (I don't believe most of them), but very few people seem to say why they want to be.  You'll get vague answers like "so I don't have to work" or "so I can buy nice things." 

 

If you really want to be rich you need solid goals you can get to and measure.  Not "so I can buy nice things" but "So I can buy a blue M4 coupe and a Starwalker MontBlanc pen."  The more specific you are the better you will be.  I find that it helps to maintain a list of the things that I want.  I have both an tangible and an intangible list. 

 

The tangible list is things like, I want a beach house in Cabo, San Jose.  Or I want a 50" Plasma TV that shows light on the wall behind it.  Some of my descriptions are so specific that they have links and pictures.  Thats good.  You have to know what you want to get it.  This also works as a Motivator.  I can see that if I only make $355 dollars over my budget this month that I can get the starwalker pen ( the rubberized fineliner one).  It doesn't matter what, but know what you want.

 

The intangible list i the harder one for most people.  It is easy to say the products you want, both because they are advertised to you, and because it is social acceptable to want luxury items.  Intangible lists can include things like "I really like to wake up at 9 and walk to the mall before I start work for the day."  Or "I like to take walks during lunch and watch all the people going to and from their offices."  They are things that are personal to you and generally concern the way you'd like to live your life, the things that really define quality of life for you.  These items are harder to define measurements for, and sometimes you can't do it at all.

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How to get rich, the basics

To get rich, you have to make more money than you spend.  It can't be done any other way.

 

There are some simple steps to becoming better with money:

1) Track everything that you spend.  If you don't know what you spend your money on, you have no chance of saving more of it effectively.

1.5) Save on the little things.  Buy generic instead, save money on the things you don't really care about.

2) Put the rest in the bank.  If you're not spending it today, put it in a savings account that earns interest.

3) Put that in the investment accounts.  If you're not spending it this month, put it in an investment account.  That means conservative stocks, bonds, or mutual funds.  Something with a generally steady growth rate.

4) Be rich.  You've saved extra money, and now you're making the most of saving that money. 

 

That's all there is to it.  Harder than it looks, but that's how to get started.

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