Getting rich is probably the goal that almost everyone is dreaming about, but unfortunately its a long and tough way that not many actually achieve. But, One of the ways to do that is to look at how rich people actually got rich and use a similar strategy. In fact, the strategy I am about to share with you has been given a name of the 8th wonder of the world.
Its the most practical way to get rich. and No, its not a scam, although that it actually sounds like one. Because this is the strategy that Warren Buffet has used to become the second richest man in the world. And if you have watched his interviews, you probably have heard about it. In fact this is one of the reasons why rich people get richer, because almost all rich people use this strategy to invest their money.
I am going to tell you about this strategy and how exactly it works.
When Warren buffet was asked how he became the second richest man in the world, he simply replied - “My wealth has come from a combination of living in America, some lucky genes, and compound interest.” But what is compound interest, its the strategy that most rich people use to keep getting richer.
In order to understand compound interest, lets first understand how interest works in the first place. First of all if you are saving money, STOP...saving money is a bad idea unless you save to invest, because your money looses value overtime. So in order prevent that and benefit the most out of your money, you should keep it somewhere so that it keeps increasing even if you are doing nothing, in other words, you let your money work for you!
Lets say for example, you invest a 10K dollars in the stock market and get a rate of return of 10% annually.
That basically means, that every single year, your 10K dollars will earn you an extra 1000 dollars, not bad, right? that's what simple interest is. You can take that money and do whatever you want.
Now, imagine if you don’t get that money out and invest it back. so, if this year you made 1000 bucks from your 10K dollar investment, Next year, you are going to make 1100 dollars, why? Because now its 10% on 11K dollars since you have invested back the money and did not withdraw it, Now, guess what happens in 15 years, its going to grow to almost 42K dollars. When with a simple interest, you could only make 25K dollars.
You can see the difference yourself Compounding works when you invest for a long period of time. So, what would happen if you keep it for another 15 years? with a simple interest, it will grow up to 40K dollar, but with compounding, it will increase up to 174, 494.
You can see how compounding grows your money faster over time. And That's just with 10K dollars. And that's how most rich people invest their money. Since rich people already have a lot of money, compounding simply makes them richer every single year and that's one of the reasons why the gap between the rich and the poor increases continuously.
Just by saving few hundred dollars every single month, you can make couple of million of dollars by the time you retire, if you start soon enough. So you probably have already realized this isn’t the fastest way to get rich but probably the most practical.