Have you ever read the allegory of the cave from Plato? If you never did, I suggest you read it.
I can’t explain why but I always knew inside of me that something was “wrong” with our way of living our lives. It is somehow comforting to see that great minds like Plato had the same thoughts back in the days, thousands of years before I was born. But, knowing that always raised me the following question : “Do we really evolve or is it just our technology that’s evolving?” It seems that humans keep repeating the same patterns over and over again. We make the same mistakes generations after generations.
Here’s what to do to stop repeating these same mistakes and become financially free:
Admit that life could be different!
Look at birds around you. Look at bees and ants and cats and dogs and squirrels. Do you think they care about going to work everyday? Now look at whales and sharks? Do you think they care about the economy or the stock market? Now look at the stars, the immensity of universe. Don’t you feel that somehow we are missing something important that might be beyong our understanding? Do you really think that E.T. the extra-terrestrial cares about human economy?
We spend our days doing the exact same things over and over again to obtain the same results. We don’t look around us. We don’t question ourselves or the system we were born in. We just follow our feet everyday to work like everyone else because we were taught that we had to do that…
I love the movie “The Matrix”. There is a lot of action and nice combat scenes but what I like the most about this movie is the philosophy that lies behind all these kicks and jumps and battles.
One of my favourite part is when Morpheus first explain to Neo what the Matrix is :
Morpheus: I can see it in your eyes. You have the look of a man who accepts what he sees because he is expecting to wake up. Ironically, this is not far from the truth. Do you believe in fate, Neo?
Morpheus: Why not?
Neo: Because I don’t like the idea that I’m not in control of my life.
Morpheus: I know exactly what you mean. Let me tell you why you’re here. You’re here because you know something.
What you know you can’t explain. But you feel it. You’ve felt it your entire life. That there’s something wrong with the world. You don’t know what it is but it’s there, like a splinter in your mind driving you mad. It is this feeling that has brought you to me. Do you know what I’m talking about?
Neo: The Matrix?
Morpheus: Do you want to know what it is? The Matrix is everywhere. It is all around us, even now in this very room. You can see it when you look out your window or when you turn on your television. You can feel it when you go to work, when you go to church, when you pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth.
Neo: What truth?
Morpheus: That you are a slave, Neo. Like everyone else you were born into bondage, born into a prison that you cannot smell or taste or touch. A prison for your mind….
Admit that there is no get-rich quick solution
Most humans prefer fast gratification than delayed gratification. That is why most of us have lost a lot of time trying to find a solution to get rich quick.
It took me almost 15 years to finally admit that I wouldn’t be able to become millionnaire in a matter of months or weeks. Maybe I’m stupid… Maybe I just believed too much in myself… who knows?!
Medias always fill us with hope that it could be our turn, that we could be the next inventor of a great and popular app… But, like with lottery, these things seldom happen and in the end, we have more chances to get struck by a lightning then to win lottery!
The solution for me is compounded interests!
The younger you’ll realize that to build wealth, you need to save consistently, invest wisely and let grow, the sooner and the richer you’ll get.
Compounded interest is one of the greatest force of the universe!
But, for that force to deliver it’s true power, the most important ingredient is time! Do not underestimate this factor. If you wait too long before realizing that, you will have to save a lot more (and probably won’t be able to) to achieve the same results.
Let’s take an exemple to illustrate this :
Mark has 20 years old. He has decided to save 100$ per month or 1200$ per year and invest it in a dividend growth portfolio. He expects the equivalent of a 8% compounded interest return.
If he continues to consistently save 1200 per years until he’s 65, he will have 542,280$ to retire.
Patrick, Mark’s friend, only saves 1200$ for five years from 20 to 25 years old and never saves again but lets his money grow until he’s 65, he will get 206,542$ to retire. Not bad for a single 6000$ investment.
Now John has decided not to save during his twenties because he had better things to do with his money!
But, at 30 years old, he starts realizing that the years are rolling and that he should start to save if he wants to retire someday. So he puts 1200$ aside every year with a 8% compounded interest rate.
Who do you think will be richer?
To achieve the same results than Patrick (207,295$), John will have to save 1200$ per years until he’s 51 years old and then let sit his money until he’s 65. If he continues adding 1200$ per year until he’s 65 he will get 242,484$ to retire, only 36k more than Patrick who only invested 6k. John have had to invest 25,2k to achieve the same results.
Now Sam has decided to start saving a bit late. At his 40th anniversary, he started saving 1200 per year for his retirement until he’s 65. Overall, he will save 30k to invest in his future. But at 65 he will only get 103,620$. So, realizing he wouldn’t go far with only 100k, he thought that he should save more. So instead of saving 1200 per year, Sam decided he would invest 2400 per year! The double!
Do you know how much he’s gonna get?
The same amount Patrick will get with a 6000$ investment that he made between 20-25 years old, 207,241$! But Sam will have to save 2400$ per year for 25 years, which means that he will have saved 60k or ten times more than Patrick to achieve the same results!
Time is the most important ingredient of compounded interest’s recipe. After that comes the rate and after that the amount you can invest.
You could achieve the same results by saving 100$ per year for 65 years for your new born. At 65, he will have 215,571$ with that small investment of 100$ per year. Or you could save 500$ per year during his first 3 years of life and let it grow until he’s 65 and he would get 223,610$!
Now imagine if you save 50$ per month as soon as your kid is born until he’s 20. How much do you think this would yield him at 65 years old?
He would have a million dollars even if he never saves another penny!
Do not underestimate the time factor!
How to invest wisely?
Now that you know that your best ally is time and that the amount of money saved is not the most important part of the equation, you also know that you need the best compounded interest rate possible!
GIC’s and bonds won’t yield you 8% per year… You know that already.
So what could?
A small business could yield you 8% per year. Real estate could probably yield you 8% per year. Index funds could also do the job. There is also the stock market who could well yield you 8% too.
If you noticed, being a lender (GIC, bonds…) won’t yield you high interest rates. But being owner might yield you more.
Why? Simply because there is risk involved in being an owner.
School probably didn’t show you how to properly invest your money. And if your parents weren’t investors themselves, than chances are that you were never taught how to invest wisely… like me!
Fortunately enough, if you know how to read, there are plenty of books to help you acquire that knowledge. Business schools have also nice courses to help you.
Investing is not like owning GIC’s. Your capital is not guaranteed. You might lose everything… Well that’s what they say. But there are ways to seek and find some protection for your capital.
Diversification is one. Do not put all your eggs in the same basket. Like a squirrel, don’t put all your peanuts under the same tree!
I have chosen to invest in dividend growth stocks. I allocate my capital over large corporations that have a sustainable moat that prevent competition from easily steal them market shares. I try to buy these shares with a margin of safety, when they go “on sale”… The Ukraine crisis recently or the debt crisis in october 2013, the market crash of 2008… These were all opportunities to acquire shares of great companies at good prices.
More share with the same investment means more dividend income. These companies not only pay dividends every year, they also increase it year after year. You could be surprised at how fast your income can compound when you reinvest all these dividends in buying more shares of exceptional companies increasing their dividends distributions year after year. But, these increase are not guaranteed and I have to follow my portfolio to make sure all the companies are going well.
What about you? Have you started to invest? What rate do you get and in what are you investing?
[author] [author_image timthumb=’on’]http://quityourdayjob101.com/wp-content/uploads/2014/03/ID-10050051.jpg[/author_image] [author_info]Hi, my name is Allan. I’m the masked blogger. Like you I’m a modern slave, prisoner of a 9@5 job in Corporate America. They told us when we were young that we would live in a society of leisure and that technology would permit us to work only a couple of hours per day. But we live in a society of stress and uncertainty. My situation could be a lot worse and I know it. So many humans are suffering on this planet. But a golden cage remains a cage anyway. At least, I have an escape plan. I will retire before 45 years old over my passive income. This is a dream that is so powerful that I will make sure it happens. To build my wealth, I mainly invest in undervalued dividend growth stocks. [/author_info] [/author]
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