Growth

Compounding interest

Compounding Interest, It’s Magic!

Money Maroon

Do you like free money? What about increasing your wealth over time by doing absolutely nothing? I figure that your response to both is yes and yes. Well, I am here to tell you about the so-call eighth wonder of the world, “compounding interest.” It is simple, very logical and does not take much to understand or implement as part of your financial toolkit. In many cases, it is automatic. It is the reason why you should start saving and or investing early, and the reason it is never too late to get on the right financial track. By understanding compounding interest today, you can be financially secure tomorrow.

What Is Compounding Interest

Compounding interest is the addition of interest to the principal sum of a loan or deposit. In the context of saving, this is the reason why it is so important to start saving and or investing early. In its simplest form, it is interest upon interest. It is a beautiful thing when you are saving and investing. However, compounding interest can be detrimental if you are in debt.

Compounding Interest As An Asset

As an example, if you earn 8% return on your savings/investment on a yearly basis, after the first year you will have a total of your initial amount plus 8% of that initial amount. If you began with $100, you will have $108 at the end of year 1. However, look at what occurs over time. At the end of year two, you will have the amount at the end of year 1 plus 8% of that amount. Essentially, you have earned interest upon interest. In our example, you would now have approximately $116 at the end of year 2. At the end of year 3, 4 and 5, you would have approximately $126, $136 and $146 respectively. In 5 years, you would have earned $46 just by saving/investing.

Imagine if over that 5 year period you continued to save and or invest to grow your principal. Your return would be significantly more. Compounding interest is the reason why someone who saves and or invest at the age of 25 to 35 and stop will likely have significantly more for retirement than those who invest significantly more from 35 to 55.  Compounding interest is the reason for a number of sayings, for example “it is not timing the market, it is time in the market.” With compounding interest, time makes all the difference.

To drive this point further home, in our example, in 20 years your $100 principal would turn into $466. If the total after 10 years is not impressive enough, in 50 years, your return would be a whopping $4,690. This total is from having $100 growing without contributing anything additional. Crazy isn’t it? Check out the US securities and exchange commissions’ Compounding Interest Calculator. Play around with the numbers, and see what happens when you not only save/invest, but also continue to do so over time.

Compounding Interest

Compounding Interest As A Liability

In the context of debt, compounding interest is the reason why it is so important to eliminate debt early. It is the reason why your student loan balance increases while you are still in school or in forbearance. It is also the reason why you hear so many stories of folks who have been paying down debt for years and have made no progress. How do you pay minimum payments on a debt for 10 years and still owe more than the original amount? The answer is simple, the answer is compounding Interest. 

The interest rate on your debt matters, and so does the time that you take to pay it off. Compounding interest is why you are typically advised to pay more than the minimum payment on debt. The faster you pay off your debt, the less time there is for the interest to compound, the less total debt you will have to pay.

Your Advantage

Now that we have tackled the issue of what is compounding interest, to have compounding interest work to your advantage, pay down debt and begin saving and or investing today. The sooner you begin to save, invest, and pay down your debt the better financial position you will be in. Compounding interest is often called the eighth wonder of the world because once the momentum begins, it is hard to stop. For better (when you save and invest) or for worst (when you are buried in debt).

Our discussion should give you the imagery of a snow ball building in size. The snow ball begins small. When small, the snowball is insignificant and can easily be stopped and disposed of. However, over time, as the snowball continues to roll downhill and  adds layers, it becomes a monster that cannot be controlled or stopped. That is compounding interest, use it to your advantage and achieve your financial goals.

Begin small, be consistent, and build over time to become financially unstoppable.

Conclusion

We all love simple and beneficial concepts that can be easily integrated into our life. Compounding interest is simple, very logical and does not take much to understand or implement as part of your financial toolkit. In many cases, it is automatic and works like magic. It is the reason why you should start saving and or investing early, and the reason it is never too late to get on the right financial track. By understanding compounding interest today, you can become financially unstoppable tomorrow. Journey to financial independence.

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Never Give UP

Never Give Up

Money Maroon

As I get older, what I have learned time and time again is that it is not about how smart you are. It is really about persistence. Yes, the never give up mentality is one of the most rewarding attribute a person can have. Getting knocked down but getting up and continuing on is a hard lesson to learn. But once you master it, the world is yours.

Never Give Up

Learning To Never Give Up

There are certain things that we are each innately good at, and far more things that we are absolutely terrible at. Throughout our lives, we will discover these things on an almost daily basis. How we deal with these discoveries will have a profound impact on our lives.

Do you recall the first time you tried to ride a bike, or for that matter, attacked a difficult math problem? Our success in learning how to ride a bike or solving a math problem is somewhat based on our mentality, but also those around us who shaped that mentality. For example, if the first time you fell trying to ride a bike your parents rushed to you and gave in to your cries to never get on a bike again, it is highly likely that you will never learn to ride a bike. I know a few individuals where this is a reality. The issue here is much larger than learning to ride a bike, you may potentially develop the mentality of trying, failing and quitting. 

If on the other hand, you fell, and you decided to get up, or your parents or others around you encouraged you to get up and try again, it is highly likely that you eventually learned how to ride a bike. 

Again, this translates to other life events. Now let’s talk about the math problem. The same principle applies. If you are discouraged and give up once you notice that the math problem was difficult, you may never learn how to solve the problem. If you eventually do solve the math problem, you may develop a hatred of math and avoid math at all cost. I am sure you know many individuals who fall into this category.

On the other hand, if you are able to power through the math problem and never give up, not only will you solve the math problem but also appreciate the concept of effort and persistence. These seemingly basic events do have an impactful effect on our lives.

Practice Makes Perfect

Have you ever heard the saying, “Practice makes perfect.” This is only another way of saying never give up. Don’t forget, while Michael Jordan was good, he became great by practicing. For that matter, Usain Bolt lost a number of races before he came into his own and dominate his sport. 

Some call it being stubborn. For others, they are classified as having a short memory. It really does not matter what you call it, it is typically a manifestation of pride, self belief, and the never give up mindset.

To bring this close to home, I am certain that you know individuals who may not have been the best at an activity that came naturally to you. Unbeknownst to you, this individual wanted to get better. As it turns out, while you rested knowing that you were good, they practiced, put in the required work and became better than you. This occurs all the time.

Persistence Pays

I have known individuals who are amazingly smart. They are able to grasp new material ridiculously fast and never had to really study. Many of these individuals never achieved their full potential. They took their gift for granted. They thought everything would come easily. However, when they hit an obstacle, they were unprepared to deal with failure. They did not have the tools, mental strength or sadly, they did not have a support system around them.

On the other hand, I know a number of individuals who were not the best. You know these individuals as well. They were likely middle of the pack with regard to academics, but they worked hard, took the long route, persevered and ended up at the top. These were the individuals who did not make the team on the first try, they did not get accepted to their top choice for college, they were rejected from professional school, but instead of giving up, they went back to the drawing board, reapplied themselves and were able to move forward. 

The fact is, in life, you will hear a lot more no’s than yes. Get use to it. “No” is an opportunity. Rejection builds character. Never give up!

You Will Hear No Far More Times Than Yes

We have all come across individuals who have not heard “no” very often. These individuals cannot handle rejection and if anything, avoid the possibility of getting a rejection or simply flips out if they are rejected. We all know individuals like this. They are typically not fun to be around. An outburst for the simplest thing is typically just around the corner.

Rejection is apart of life, and if viewed in the right context, rejection can be a huge motivational factor in life. Rarely do we make it through life without being rejected. For many overachievers, rejection is their fuel. That person who other’s may say act as if they have a chip on their shoulder did not become driven by always winning. It is rejection that fuels their fire. The agony of defeat built them mentally to never give up.

For others, if the door was close on one path, they never give up, they simply found another way in. The never give up attitude is exemplified in the winners of life. The earlier we can see failure as an opportunity, the more likely it is for us to succeed. This is true in our financial life and otherwise.

Conclusion

As I get older, what I have learned time and time again is that it is not about how smart you are. It  is really about persistence. Yes, the never give up mentality is one of the most rewarding attribute a person can have. Getting knocked down but getting up and continuing on is a hard lesson to learn. But once you master it, the world is yours.

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Growth mindset

Adapt A Growth Mindset Today

Money Maroon

Every once in a while, you will come across something that is so impactful that it will stop you in your tracks. Recently, it was a quote from Nelson Mandela “I never lose, I either win or learn.” The quote is simple yet profound. In reality, it represents a different way of approaching life. This quote is the foundation of a growth mindset. 

Growth mindset and fixed mindset
Growth Mindset

Growth Mindset

The growth mindset is not necessarily natural. We all have fears and are prone to acting for short term gratification. We are also prone to feeling sorry for ourselves and blaming others. The growth mindset on the other hand relates to believing that your success depends on time and effort. Believing that you control your destiny. Believing that you can improve with effort and persistence. This mindset thus leads to embracing challenges, persisting through obstacles, learning from criticism and seeking inspiration in others’ success. Those having this mindset therefore believes that with time and practice, they can achieve. 

Change Your Mindset

We typically have a mix of a growth mindset and a fixed mindset (believing that certain qualities are inborn, fixed, and unchangeable). But it is up to us to take control of our lives and realize that we are in control of our actions and the resulting consequences.

It is up to us to learn from new things/experiences and to view errors as learning opportunities and only a stop on the path to achieving our full potential.

Nelson Mandela

We all know Nelson Mandela’s story. It is amazing and down right inspiring on it’s own. However, the words spoken by Nelson Mandela are truly profound. Nelson Mandela, an amazing optimist, a truly amazing man.

To view life in the context of “I never lose, I either win or learn” is the basis for continual growth.  This is the growth mindset. Viewing failure as an opportunity to learn internally pushes you to seek new experiences and challenges you to better yourself. When you believe that you can get better by challenging yourself and learning, it is easy to understand the correlation between hard work and success. Therefore, you will put in extra time and effort to gain higher achievement.

Growth Mindset In Life

Having a growth mindset in your life, generally, is a good thing. It is never a bad idea to seek knowledge and continue to learn and grow over time.  As this is a financial independence related blog, the following must be addressed. It is important to note that having a growth mindset, more specifically, in your financial life is a great attribute. 

The path to a financially secure life takes patience and the requisite need to learn from your experiences as well as others. Like anything else in life, the more you learn, the better you become. The more you learn about your financial situation, an emergency fund, saving, investing and other financial tools, the better you will become at creating a more financially secure life.

Conclusion

Every once in a while, you will come across something that is so impactful that it will stop you in your tracks. Recently, it was a quote from Nelson Mandela “I never lose, I either win or learn.” The quote is simple yet profound. In reality, it represents a different way of approaching life. This quote is the foundation of a growth mindset. Adapt a growth mindset and journey to financial independence.

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Peppers

Growing Your Own Produce And Financial Independence Pt:2

Money Maroon

Growing your own produce is similar to growing wealth, it takes time and consistency.  Both gardening and building wealth requires that initial thought to take action, and then acting to begin the process. Saving that first dollar is akin to purchasing that first seed. Planting the seed is like depositing that dollar into a bank/an investment account. Watering the seed is similar to adding funds to your accounts. With consistent watering and sunlight over time, a delicious fruit/vegetable/herb will grow for harvesting. Like the fruit/vegetable/herb, with consistent deposits and rebalancing over time, your bank/investment account will grow for your harvesting at the time of retirement.

As I grow my fruit/vegetable/herb garden, I cannot help but to think of the parallels between growing your own produce and building wealth. 

Peppers
Return on investment

The Idea

My family had the idea to begin growing our own vegetable and herbs for some time now.  At the very least, we had the romanticized thought of waking up and picking our own tomatoes and peppers as needed. Further, have you seen the prices for produce in the supermarket lately? We also knew that by growing our own vegetables and herbs, we would  begin to use the greenhouse that we have in our backyard. We would initially grow the fruit/vegetable/herb outside and as they grow, bring them into the greenhouse. Our thought was to prevent the birds and other animals from snacking on our vegetables.

On the journey to financial independence, we all begin with an initial thought of waking up and having our F.I.R.E number in the bank. We next turn to the why. We want to retire early to spend more time with family, travel the world or to be able to spend more time doing what we believe to be important. Freedom!!

And then there is the hard part, the how.

Taking The First Step

Once the thought of financial independence is solidified, how long did/will it take you to act? It is very likely that you did/will not act that day, or that month. While we all know that it is important to save and invest as early  as possible to take advantage of compounding, we tend to delay. We use excuses such as: we do not have the money. This fallacy was discussed in The Journey To Financial Independence Is A Marathon, Not A Sprint. Further, because we know that it will take some time to achieve the end goal, we have difficulty starting on the journey  to financial independence. We have difficulty with delayed gratification.

Like beginning the journey to financial independence, we did not begin gardening immediately, we delayed until we shamed ourselves into beginning.  We got to the point of discussing each week, “we should purchase the seeds and plant them.” The next week “next week we will buy the seeds.” The next month, “we should really get this done.” The final straw, “if we do not plant now, we will miss the growing season.” Our prompt to act was the reality that we may miss the growing season. As such, we ventured out to get our seeds and growing pots and later ordered our greenhouse racks.

Like any great plan, the most difficulty part is beginning. Do not wait for a so call right time to begin, begin on the journey to financial independence now. The fact is, there is no better time than now. If you believe you do not have enough to save, finding a way to save $5, $10, or $100 now. Saving on a tight budget will teach you the discipline required to save $1,000, $10,000, or $100,000 later. Set up your saving account now. Build your emergency fund. Open a brokerage account now. Implement a plan to pay down debt now. Do it!

Growth

In growing your own produce, once we planted the seeds in our pots, to achieve the end goal of mature plants with fruit/vegetable/herb, we needed to consistently water our seedlings and expose them to enough sunlight. Every other day, we would water the seedlings in the morning. Over time, we began to see growth. Then peppers and tomatoes appeared as we continued to water and expose to sunlight.

Tomatos
Return on investment

Like our fruit/vegetable/herb, once we began the process of saving and investing, we had to perform consistent maintenance. We set up automatic contributions to both our saving and investment accounts. We actively paid down our debts and at times paid more than the minimum. Like the peppers and tomatoes, our money began to grow. Over time, our debt began to decrease and our wealth increased. While we are closer to financial independence, we have a long way to go. However, we have noticed a number of benefits.

Tangential Benefits

Gardening provides a number of tangential benefits. Growing your own produce can be a great family event. If you have little kids, this is the perfect way to introduce your kids to how fruits and herbs are grown and how they get to the supermarket. Further, this is one activity where little kids can participate in almost all activities. For example, planting seeds, watering the seeds, transferring the plants, harvesting the produce and eating the produce. It is also a great way to get your kids to eat vegetables. They are eating the vegetables that they themselves grew. Gardening is also a great exercise, it gets you off the couch, out of the house, and doing physical and mentally soothing activities outside.

Like gardening, there are real world benefits to beginning the journey to financial independence. The benefit of starting the journey to financial independence is the knowledge that you have an emergency fund and that the fund and your wealth are growing. Having money in the bank lowers financial stress, allows you to take advantage of opportunities and improves confidence. The confidence to take active steps in life to better yourself and financial position. These benefits will affect all aspects of your life, including your personal relationships and your mental health.

Conclusion

Growing your own produce is similar to growing wealth, it takes time and consistency.  Both gardening and building wealth requires that initial thought to take action, and then acting to begin the process. Saving that first dollar is akin to purchasing that first seed. Planting the seed is like depositing that dollar in the bank/an investment account. Watering the seed is similar to adding funds to your accounts. With consistent watering and sunlight over time, a delicious fruit/vegetable/herb will grow for harvesting. Like the fruit/vegetable/herb, with consistent deposits and rebalancing over time, your bank/investment account will grow for your harvesting at the time of retirement.

Follow me on Twitter @JoToFI_com

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Grow Your Own Produce & Financial Independence

Grow Your Own Produce & Financial Independence

Money Maroon

A key component of financial independence is the act of living below your means. Living below your means results from taking stock of your expenditures and cutting back on unnecessary spending. Two of the largest expenditures on a monthly basis is food and mortgage/rent. We often look at lowering our mortgage/rent, but what about what we spend on food? If you are able to reduce your expenditures at the supermarket, would you be closer to a lifestyle that accelerates your journey to financial independence? Consider adapting a farming to F.I.R.E approach, and grow your own produce.

Fresh Produce Is Expensive

Purchasing healthy and fresh foods are typically the most expensive portion of your supermarket expenditure. Typically, a mango will cost at least $1 per mango. What about green peppers ($1.30 each), cucumbers ($1 each), chives ($7 a bottle), orange ($1.50 each), grapes ($5/lb), pineapple ($3 each), water melon, ($6 each) avocados ($2.50 each), apples ($5/lb) and tomatoes ($5)? If you are practicing a healthily lifestyle, by the time you exit the produce section, you have spent over half your budget. Have you thought to grow your own produce or at least a portion?

Grow Your Own Produce

Grow your own produce: Peas, Pepper, Thyme

Based on where you are living, you may not have access to a large backyard, however, anyone can begin growing their own mint, watermelon, basil, chives, peppers or tomatoes inside. Your investment is the purchase of the seeds or small plants and water. If you have the room to do so, investigate growing mangos, avocados or oranges if you live in an area that does not freeze. Or invest in a greenhouse that may keep your plants warm year round.

For those who have fruit trees or have family members who have fruit trees, the cost of these fruits are the cost of walking outside to pick the fruit or the cost of postage (family members posting the fruits). Once mango/avocado/orange/certain peppers/mints are established, they reliably bear new fruits yearly with very little maintenance required. A little investment upfront, yields generational benefits.

The Benefits: Grow Your Own Produce

Imagine the savings if you invest a little time in beginning to grow a portion of your own foods, growing your own produce. While saving $5 here, $2 there and $10 over there on fruits, vegetables, and herbs may not seem like a lot, the small totals do add up. Consider how much you could save each visit to the supermarket. Then, multiply your total by months and years. 

Do not only consider the savings that would be achieved, imagine the satisfaction. Imagine the access to fresh foods if you currently live in a food desert. Imagine the effects on your health.

While we are not encouraging you to quit your day job and become a farmer, we are encouraging you to take a step towards growing a fruit, vegetable or herb. If you like it, grow something else.

Grow your own produce: Basil

Conclusion

A key component of financial independence is the act of living below your means. Living below your means results from taking stock of your expenditures and cutting back on unnecessary spending. Two of the largest expenditures on a monthly basis is food and mortgage/rent. We often look at lowering our mortgage/rent, but what about what we spend on food? If you are able to reduce your expenditures at the supermarket, would you be closer to a lifestyle that accelerates your journey to financial independence? Consider adapting a farming to F.I.R.E approach and grow your own produce. 

Follow me on Twitter @JoToFI_com

Follow me on Instagram @JoToFI_com