Wednesday, March 13, 2013

Changed my life... part III

Albert Einstein has been credited to say that compound interest is the most powerful force in the universe. There is certainly truth to that statement. If you are just reading this blog series for the first time, I am doing a three part series on the three keys to wealth from Robert Kiyosaki's amazing book Cashflow Quadrant. 
If you would like to check out the other two parts click on the links: part I and part II.

Before reading this book or understanding anything about business I was completely oblivious to the power of compounding. After digging into it a little more I understood very quickly why. 
Let me start with an example we are all familiar with. Who has taken out a loan. Car loan. Home loan. Have you every borrowed money and had to pay interest on something?
If you take out a $150,000 home loan at 5% for 30 years you will pay of a total of $289,000 in principal and interest. This is no surprise to most homeowners; we all know that we have to pay some interest to borrow the money. That means you would have to pay almost double for what the house is worth over that period of time.
Let's take it another step though, every single month a homeowner makes a payment to their mortgage company that homeowner is falling prey to the power of compounding. It is working against that homeowner every day there is a lien on a property, an automobile and even recreation vehicles.
I understand most people must take out a mortgage in order to become homeowners but back to my last article. Do we really need to finance that new truck? Do we really need to take out that home equity loan for the addition on the house. The longer a consumer is in debt the longer the power of compounding will work against them. 
Out of all three keys to success this has been the hardest for me to comprehend. I think the reason why is because I have never been taught to use the power of compounding before learning these tips from this book. We are also taught every day in our media to buy or lease that new car for only $250 a month. That statement right there goes again all three keys to wealth. It tells you think short term, get it now and it's not that big of a payment. 
But we all start somewhere by utilizing the power of compounding in our life. If you read a book and learn, you will grow. If you read another book you will grow. As you read and learn you are compounding your knowledge to get better. That is the power of compounding; applied to learning. This can be applied to thinking, fitness, finance and even time with family.
This last step will never take full effect until the first two are practiced. First have a long term vision, because we should all know quick fixes can never be permanent and second, delay your gratification. Deny yourself, set a goal, accomplish the goal and then reward yourself. The victory and prize will mean so much more. 
I hope you have enjoyed reading this three part series. If you haven't yet, go and pick up Cashflow Quadrant. 

Feel free to comment, share and let me know your thoughts. 
ifferent information = Different actions = Different results.

Thanks again for reading and God bless!