(Note: the most important financial decision you will ever make is probably the fact that you became an artist in the first place. Beyond that, this one is probably runner up…)
I am a big believer in learning from others who know better than I. In fact, I intend to be learning for the rest of my life. As an adult, even after I left school, I’ve continued to seek out resources of wisdom that can help me prosper and be happy. A few years ago, I found Tony Robbins’ book “Money: Master the Game” one day when I was with my wife at Target. Needless to say, seeing that weighty tome of 500+ pages got me excited. Because I sensed immediately that there was a lot for me to learn there.
I asked for it for Christmas from my wife. She delivered.
I got a TON out of this book. And as it would happen, I may have gotten just as much out of one of the videos Tony Robbins did to accompany the book.
YOU MUST WATCH THIS VIDEO! (SEE BELOW)
As Robbins explains, the most important financial decision you will ever make is to take a piece of what you earn and save and invest it. Over time, this money has the power to grow into a powerful money machine that will take care of you financially. It all has to do with compound interest, or “compounding,” as he calls it. The idea is pretty simple:
- You start with a certain sum of money
- When it is invested properly, that amount of money will grow because of interest
- Over time, that interest will accumulate, that adding to the original sum.
- Eventually, the money will double, triple, quadruple, etc, and as it grows, even a small percentage of growth will amount to a lot more money because of all the accumulated interest
- Accumulated interest plus the added value of continued savings can become an unstoppable pair generating great prosperity
🙂
Let’s look at a specific example. Let’s just say you invest $1000 and are able to get 10% per year in interest for as long as you invest (I know that in actual practice, it’s not usually this cut and dry, but it illustrates a point). After one year, you will have gained $100 in interest. Not a bad profit, right? You now have $1100.
What happens after the first year? Suddenly that 10% is $110. Your interest is now $10 more! After the second year, you have $1210.
After the 3rd year, you gain $121, giving you $1331. What do you see happening? The original principal is growing at an ever-increasing rate. This can be significant over time.
Here’s a table to show the growth by year (I like tables):
Year Starting Amount Interest Rate Total Interest
1 $1000 10% $100
2 $1100 10% $110
3 $1210 10% $121
4 $1331 10% $133.10
5 $1464.10 10% $146.41
6 $1610.51 10% $161.05
7 $1771.56 10% $177.16
8 $1948.72 10% $194.87
9 $2143.59 10% $214.36
As you’ll notice, in this model, after year 9, you’ve more than doubled your original investment.
And that without doing anything but letting it sit there! What starts out as a small amount grows exponentially. And that is the power of compounding.
The idea of compounding may be unfamiliar to some of us artists, unless you are mathematically inclined (or had parents who were that rare combination of being supportive of you pursuing your art while ALSO being investors). But even if you are mathematically inclined, like I have always been, have you put this idea to use in regards to your own money?
I had not. I had heard about compounding interest repeatedly, but it never hit home for me quite like it did in listening to this video (which I have probably listened to 6-10 times). In fact, I believe I was listening to this video when I made the decision to start investing a couple of years ago.
Every person should watch this video and do as Robbins suggests! Compounding is your friend. Time in the market is your friend! Is it worth taking an hour out of your life so you can gain some knowledge that, if put to use, could someday provide income for you and your family? I think so.
Enjoy the video, and let me know what you get from it in the comment section below:
This is such great practical advice with a solid explanation of how it works, thank you! Money makes money if you do a little work with it via investing well, yes!
Yes indeed, the concept is simple… yet common wisdom isn't always common practice. With compounding, there is a HUGE difference in the outcome between using it to its fullest advantage and NOT doing so.