You’re Wrong about Money. Consider this.
Calculate the future value of your money
Why is this important to you?
Well, it is your money, it directly impacts your life, how you live and what you get to do with your time, so it’s worthwhile considering the future value of money.
Before you get worried about the technical jargon, like interest rates, deposit amounts, ad compound rates let’s break it down into simple layman’s terms.
Read also: 3 money mindset that will make you rich
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Here is how you can think about it:
If let’s say I could give you $100 today or $100 next year, which would you rather have?
Let’s give it a minute to consider what works best for you.
You would want the $100 now wouldn’t you rather than waiting a year. I mean you could actually do something rather than waiting a year in which you may or may not receive the $100, and by that time your $100 would most probably be able to buy fewer things than the $100 today, due to inflation.
If the $100 is worth much less next year than what it is worth today the interest is just the compounding effect on the time value of money formula.
The best way to take advantage of compound interest is to give yourself as many years as possible to build wealth. It’s equally important to not fall victim to compounding. That means understanding how compound interest applies to debt and avoiding scenarios where you’re carrying a balance for too long.
Start thinking of money like this
Think of money like this, if you could save money today and put it in an S&P 500, how much would that money be worth in eg 15 years assuming a 10% rate of return.
Let’s say instead of buying a magic lamp/car/phone (insert your desired item) you put $5,000 in the S&P 500 instead.
After 10 years, the $5,000 would be worth almost around $13,000.
After 20 years, the $5,000 would be worth almost around $33,000.
The question to ask yourself is, “is the item you wish to buy now worth the future value of $33,000?”.
This will really help put things into perspective.
Don’t just focus on saving Focus on earning.
Saving is a safe and good way to get rich, but it’s probably the slowest way to get rich. Maybe if you are lucky you may be able to reach the million-dollar mark when you’re 65 years old.
But I’m sure you want to build wealth now when you are young so that you are able to enjoy it. The only way you can do that is to focus on earning.
If you want to get really, really rich, shift your focus from saving to earning. Below is a quote by self-made millionaire Grant Cardone:
You can’t save your way to millionnaire status.
Some people take saving to an extreme, like cooking lasagna in a dishwasher, or unscrewing lightbulbs to save electricity which is just absolutely insane.
Read also: 12 small secrets for huge financial freedom
Then there are those that blow money like there is no tomorrow.
Moderation is key.
Don’t forget to celebrate small wins
People tend to focus on the long term goals that they forget about the small wins. People tend to focus on how far away from their goals instead of how much closer they got.
There is more to life than just saving $3 million dollars before your 40th birthday.
Your building a secure future that’s important. However:
Psychologically you have a self-reinforcing nature.
Your brain responds positively to rewards and small wins. That extra spark of dopamine is important to keep you chugging along and to continue your next milestone.
In summary, your brain responds to how you perceive money and how you choose to manage it.
Equipping yourself with the right information and knowledge allows you to make the best-informed decisions for yourself.
CONTRIBUTED BY Marcus Tan
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