“If you spend more than you make, you will go into debt.”
Most people understand this statement. It’s obvious that by spending more than you make, you’ll end up poor and indebted. The problem with (lack of) financial literacy is that most people don’t believe the opposite statement to be true.
“If you spend less than you make, you will be weathy.”
Most underestimate the ability of time and the power of compound growth to create wealth. Rather, many are fooled into believing that we require significant skill in stock picking and investing to succeed. While others believe the system is rigged and investing outcomes are controlled by wealthy corporations. These beliefs cause us to procrastinate or avoid saving and investing altogether.
The truth is that time, and only time, is required to create wealth for those who spend less than they make and invest early in their lives.
To see why this is true, here’s a 3-part series on The Power of Time (and a History of Stocks and the Stock Market).
The Power of Time Part 1 – A Dollar a Day
Most of us can afford to put aside $1/day. It doesn’t seem like much, but 40 years of saving just $1/day results in a substantial amount of money.
The Power of Time Part 2 – Would You Rather
Would you rather invest $50K to earn $1.1M or $125K to earn $570K?
Most people choose the latter.
The Power of Time Part 3 – Why 11%
Today’s interest rate on savings is less than 1%, here’s why I keep using an 11% annual compound rate of return in most of our examples.