“Stop dreaming! That’s not going to happen, that’s too good to be true…”Which boils down to:
“That’s impossible”That belief is what prevents most people from ever reaching financial independence because if they believe something is impossible they won’t take any action. They won’t read any book about finance, they won’t attend seminars, they won’t interview people who are already financially independent, which is necessary to become financially independent.
MAKING MONEY: The
most popular piece I've published in 40 years of writing these
Letters was entitled, "Rich Man, Poor Man." I have
had dozens of requests to run this piece again or for permission to
reprint it for various business organizations.
Making
money entails a lot more than predicting which way the stock or bond
markets are heading or trying to figure which stock or fund will double
over the
next few years. For the great majority of investors,
making money requires a plan, self-discipline and desire. I say, "for
the great majority of people" because if you're a Steven Spielberg or a
Bill Gates you don't
have to know about the Dow or the markets or about
yields or price/earnings ratios. You're a phenomenon in your own field,
and you're going to make big money as a by-product of your talent and
ability. But this kind of genius
is rare.
For the average investor, you and me, we're not geniuses so we have to have a financial plan.
In view of this, I offer below a few items that we must be aware of if we are serious about making money.
Rule 1: Compounding:
One of the most important lessons for living in the
modern world is that to survive you've got to have money. But to live
(survive) happily, you must have love, health (mental and
physical), freedom, intellectual
stimulation -- and money. When I taught my kids
about money, the first thing I taught them was the use of the "money
bible." What's the money bible? Simple, it's a volume of the compounding interest tables.
Compounding
is the royal road to riches. Compounding is the safe road, the sure
road, and fortunately, anybody can do it. To compound successfully you
need
the following: perseverance in order to keep you firmly on the savings path. You need intelligence in order to understand what you are doing and why. And you need a knowledge
of the mathematics tables in order to comprehend
the amazing rewards that will come to you if you faithfully follow the
compounding road. And, of course, you need time, time to allow the power of compounding to work for
you. Remember, compounding only works through time.
But
there are two catches in the compounding process. The first is obvious
-- compounding may involve sacrifice (you can't spend it and still save
it).
Second, compounding is boring -- b-o-r-i-n-g. Or I
should say it's boring until (after seven or eight years) the money
starts to pour in. Then, believe me, compounding becomes very
interesting. In fact, it becomes
downright fascinating!
In order to emphasize the power of compounding, I am including this extraordinary study, courtesy of Market Logic,
of Ft. Lauderdale, FL 33306. In this
study we assume that investor (B) opens an IRA at
age 19. For seven consecutive periods he puts $2,000 in his IRA at an
average growth rate of 10% (7% interest plus growth). After seven years
this fellow makes NO MORE
contributions -- he's finished.
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