One of the earliest lessons imparted to me by a very demanding mentor was the importance of compound interest. I know. Not the most exciting topic on the wealth creation agenda! In fact it had always struck me as a mind-numbingly boring and lifeless subject until one of my mentors patiently took the time to explain the effects of saving a modest sum every week and letting time do its work on the accumulated capital and interest. The results were truly astonishing. And that’s because the time frame really does make a very important contribution to the effects of saving on a regular basis. The interest applies to the amount saved as well as to the amount that’s added every month as interest. It’s a major revelation to discover how powerful this simple mechanism can be when applied to a simple savings plan and that leads me to the second piece of advice that was imparted to me by my mentor. Savings come before expenditure. Again, it’s a ridiculously simple concept but the reality is that most people spend first and only consider saving whatever’s left over. In most cases, that amounts to precisely nothing! The better way of generating long term wealth is to set aside a sum every week or month and make it the basis of a regular savings strategy. And something, even a very modest sum, is always better than nothing. Having put aside an amount for savings, you’re then free to dispose of the rest of your hard-earned cash in whatever way makes sense to you.
I met a man nearly twenty-five years ago who had accumulated over a million pounds in cash using this method so don’t underestimate the power of regular savings and the wondrous effects of compound interest. It reminds me of the legendary footballer, Mr George Best, who was once asked by an interviewer what he’d spent his considerable fortune on. He replied that he’d spent his money on wine, women and song. The rest, he said, he’d just squandered.
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