My Recommended Path To Achieving Wealth

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image: ejbastes.com

Last week, I was hired as a facilitator for a one week "Excel for Business" training for NNPC senior (looking) staff. While teaching them the financial calculations formulas in Excel, I told them I was going to show them the magic of compound interest. That if I started saving N12,000 monthly in a 15% annual interest rate account from the age of 20 and another person started saving N100,000 monthly in a 15% annual interest rate account from the age of 40, and we both retire at the age of 60; I am going end up with more money that the other person. I wished you were there to see the serious look of disbelief on their faces. 


We did the calculation and not only would I have more money but my money would be more than double that of the other person. I told them that's the magic of compound interest -- when your interest earns interest for you. Then I told them knowing this permanently changed my life -- especially my lifestyle and my friends. It is the basis for my preferred way to building wealth.

We all know that the secret to financial happiness is spending less than you earn, but what many of us underestimate is the innate desire we have to spend. The brain is an expert at justifying spending. And without superior arguments that knowledge of the magic of compound interest provides, you will seldom win the battle to not spend.

I know too many people who are not terrible with their finances but because they don't understand the magic of compound interest in achieving wealth, they only save for a long time to spend all on something big. So theirs is more of delayed spending, rather than saving to build wealth. 

I save/invest to build a passive income that can fund my expenses and any wild adventures, without dipping into my original capital. That sounds too theoretical. So here's something more practical sounding -- Jim Ovia will be getting a dividend of N12 billion as a shareholder in Zenith Bank this year. Even if he buys a private island or squanders all that money, his original investment is intact, growing and will generate even more of such money for him in coming years. All you needed to be getting that type of benefit was to have invested couple of millions of Naira in Zenith Bank shares about two decades ago. You didn't need to have started the bank or play any active role in it. That is the magic of compounded growth (which is the foundation of every proper investing/saving).

For the past four years Microsoft has been inviting me for fully sponsored events in USA, Dubai, Turkey, Netherlands, South Africa and a few other places. All required from me was to pay my flight (and visa). It was only the first year, I made efforts to go. Now I think of what that $2,500 I will spend on flight and comfort will be within just a few years of compound interest magic. So I don't go. The one that held this month in USA, all the other MVPs (Microsoft Most Valuable Professionals) in Nigeria went and said people asked about me (the missing guy). That is how seriously I take this saving/investing thing. I have become a miser. I have no qualms spending on my business or ideas that will generate income. Just last month, I bought a N560,000 laptop. The dollar funds I wouldn't dip my hand into for flight to USA, I speedily withdrew from when I wanted to build my stock analysis app. I spent about N1.5 million on tax matters (N700,000 for VAT and N800,000 for auditing) last year (to a government that mostly squanders the money). That alone is enough reason to want to spend something on oneself. But when I think of the magic of compound interest, I would rather save/invest.

My recommended path to achieving wealth is saving or investing in a high yield account/instrument. 

One of the people in the NNPC class remarked that life is too short and I would miss out from the opportunities those events open up. Those are sacrifices I am willing to take. By the way, when you die whether you've visited all the countries in the world or never seen beyond your corner of the earth, will not matter. And as regards opportunities my miserly lifestyle will deny me, I don't care. I get too many opportunities I pass on already. Plus, in my line of work there will always be a client willing to fund my traveling as part of the consulting work to be done for them (so they cover my travel, hotel, feeding and still pay me for my time + expertise).

Ultimately, my advice to you if you are an average Nigerian like me and young, is that think about the many startups that start gloriously and fold up later. Then think about your Instagram friends and Facebook friends who are starting life on the fast lane. Wealth is not about what you spend but what you have after spending. And with compound interest, better to delay your spending as far into the future as you can. 

4 comments:

  1. Replies
    1. first learnt about compound interest from Darren Hardy, you just helped buttress the point on Focus and Persistence.

      thanks alot, will sure go back to being dedicated to monthly savings.

      Delete
  2. Am I not too late to start investing?

    ReplyDelete

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