Financial Freedom through Compound Interest
Becoming financially independent so that you only have to work if you want to is not such an impossible dream as you may think. Most people, though, think that they need much more money than they actually do to reach that stage of complete financial freedom and they feel overwhelmed so they do nothing about it.
So, what does financial freedom mean to you? If your housing costs, food and other essentials, cars and a little entertainment were covered for you each and every month for the rest of your life, would you not be financially independent? Most people don’t need millions of pounds to cover these costs therefore it isn’t such an unattainable goal.
The secret is spending less than you earn and investing those savings. Most people spend much more than they earn and this is how they end up in the never ending cycle of working to pay off things they have already bought which they may rarely use. The easiest way for most people to save money each month to put in an investment is to set a certain percentage of their income which is allotted to savings and then have it automatically deducted from their wages.
Once your savings are invested you will benefit from compound interest which is basically the equivalent of a snowball that rolls down a hill, picking up more snow as it goes. Essentially, if you invest £10 in February, in the first month you will earn interest on your tenner, but the following month you will be earning interest on your tenner plus the interest you earned the previous month. So, if you invest a small amount every month then you would be surprised how much you can earn over time.
For example, if you invest £50 every month for 20 years at an annual rate of 9%, which is extremely conservative, at the end of those 20 years your investment would be worth over £33,000. Essentially you have almost tripled your money because your total investment works out to £12,000. What if you could invest £100 every month? Or even more.
If you think it’s impossible to set aside even £50 a month you really need to draw up a budget and see where your money is going. You will often find that if you cut out a couple of pints each week you will save even more than £50. Isn’t your financial freedom worth it?
