The terms ‘rich’ and ‘wealthy’ can be used interchangeably and they mean different things to different people. Money itself is not motivation enough; people want what money can provide – things like freedom, life experiences, the best medical care if needed and security in knowing you can not only survive but thrive in doing the things you want to do.
There is no magic wand to get rich quick or build wealth but there are proven methods to build wealth slowly. It takes a consistent and persistent approach as wealth is built over time and it CAN happen if you instil some good habits early, habits like saving.
To quote a famous investor (Warren Buffet), ‘Do not save what is left after spending, but spend what is left after saving’.
Take a look over the illustration above comparing Gary and Jane. Let’s assume that in his 20s, Gary was busy partying with his mates and buying toys that he no longer has a use for. Now Gary is 35 and it’s dawned on him he needs to make a change so he starts saving/investing $1,000 per month.
By comparison, Jane was more sensible in her 20s. Jane still had fun and enjoyed herself but always had her eye on the bigger picture, which was building wealth. Jane started contributing $1,000 per month at age 25.
Fast forward to age 65 and, for an extra 10 years of contributions compared to Gary, equating to $120,000, Jane has accumulated an additional $2,000,000! You will see that even by Jane’s age 35, which is when Gary started, Jane was way ahead.
As Jane amasses more wealth, compounding interest further increases the wealth created and the cycle continues year in, year out.
This is the power of compounding interest, one of the best tools you can take advantage of to build wealth over the long term through a consistent and persistent approach.
Quite a few people would gasp at setting aside $1,000 per month but it’s not your salary that makes you rich, it’s your habits. A small change today to your spending and savings habits can make a world of difference in the long run.
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