Learning about money
A few month passed after I started to take some of the monthly income away and put it into what I called "some investment". I did check the balance of my new and interesting P2P project few times a month, but things started very slowly and I in the end only spent half an hour a month managing that part. During that time a few colleagues of mine started to invest in Bitcoin and other crypto-currencies. I didn't want to participate in what I thought back then, "Wasting my money" in a high high risk asset. Also I wanted to keep investing as least time consuming as possible and the amount of time they have been talking about that issue and the hours of research they must have spent in the evenings, where I rather spent time with my friends and games... scared me off.
Nevertheless it was one way of investing. Investing in general began to attract more and more of my interest. As the summer went by and I was arguing about interest rates and capital growth comparison between crypto-currencies and traditional investment assets, I started calculating.
I was always talking about lending my own money to strangers - because it's the only investing, I was performing - on this platform with interest rates of 4-16%, which in my eyes, was very good. To get things closer, my friend told me about this coin exchange, where you can also lend your coins and even Dollar to other people, who fund their margin trades with that. The interest rates there have been about 30% at that time and pretty stable from a crypto currency market point of view. Back in August 2017 cryptos have been everything but stable.
During a lunch break we began calculating with annual return of 5%, 10%, 20%, 30% and more. I rediscovered the force of compounded interest. Even at 5% annual return, every Dollar invested today would become 1.65$ in ten years. That's two thirds more. Without doing a thing. In just 10 years!
For some days I was throwing numbers around made up weird scenarios with high and low interest rates and changing rates over time, peaks, lows, all kind of nonsense calculations. I got inspired by some values like:
- 1 000$ at 5% for 10 years: 1 647.01$
- 1 000$ at 10% for 10 years: 2 707.04$
- 1 000$ at 20% for 10 years: 7 268.25 $
- 1 000$ at 30% for 10 years: 19 358.15$
With 30% I can make nearly 20 times the amount of money in just 10 years. I got this idea in my head. What about the magical million I always thought I could never achieve. What about getting the million in just 10 years? So I calculated. With 30% annual return I would need to save round about 1330$ every month to get 1 million Dollar in 10 years. Despite the fact that I thought, that I never ever will be able to save 1400$ every month, that number was way smaller than I thought it would need to be. I always thought of saving as linear growth. Saving 1330$ month by month without compounding, would result in about 160,000$ after 10 years. Still a big number, but not enough to reach financial independence.
I was so amazed by the fact that I thought I know you can't save your way to a million, that I had this realization: I know that I know nothing. I became aware of my non existing financial education and acknowledged, that there has to be way more out there, which I don't know, than I know. I changed my way of thinking from "I guess it's that way" to "I don't know, let me find out" and started to educate myself.
Whenever you become interested in something you don't know much about, you have to learn much or get much practice, to get good at it. I wanted to be good at finance, but I didn't want to lose money on uneducated guesses and practice, so I started to educate myself. I opened up Google and YouTube and got Audio books.
Audio books are a perfect way for myself to learn stuff, because I am driving a lot alone in a car and there is not much you can do when you are driving besides listening to the radio or your own music. But even at that I get bored after at least a few hours. So I started to listen to interesting stuff on the road.
It is very important to start investing. Get used to it, to have something with money going in the background. It creates motivation to read and educate yourself on that topic, because suddenly it effects you directly instead of just being some common sense and good to know stuff like all these life hacks you see on the Internet and think of it to be very useful and then have it forgotten the next minute.
During the following month I continued to invest and to suck in information about money from books and blogs and videos and friends and colleagues and on and on. And I got better at investing. Slowly I learned how to increase my annual return and also my feeling of having save assets. I was thinking that I am on the right way. Which made me even more interested in learning more.