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WHAT ARE THE MOST important financial notions? For me, the answers are “compounding” and “financial independence.”
Albert Einstein purportedly called compounding the eighth wonder of the world. Warren Buffett has said that the power of compound interest played an important role in his success. But what I’ve learned is that compounding doesn’t just apply to our finances. It can also be used to improve our health, our relationships and our mastery of whatever topic we choose.
Life reinvention is a slow process that happens in small steps that compound upon one another over time. You need to be patient and let the power of compounding work its magic. Do one positive thing each day, such as exercising, eating right or developing a new skill, that moves you toward who you want to be. If you do that one thing every single day, I promise that you’ll get there.
Meanwhile, I discovered the concept of financial independence—as opposed to the traditional notion of retirement—when I was in my mid-50s and struggling with whether or not to leave my stressful banking job. It was one of my biggest aha moments. I didn’t want to fully retire, but I wanted the financial freedom to do what I wanted when I wanted.
Realizing I had that freedom was life-changing for me. It gave me back my personal freedom—the freedom to be me—and allowed me to regain control over how I spend my time. I wasn’t scared about losing my job anymore. I could finally sleep at night knowing that, no matter what happened, my family and I would be okay.
We all have a fundamental need for security and safety. Gaining some degree of financial independence helps us meet those important needs. Achieving financial independence allows us to change our life’s direction. We can use that freedom as a stepping stone to a better life.
Mike:
This is an excellent short post that everyone “should” follow for achieving financial independence and freedom.
AH, BUT! One’s personal choices is the caveat!! Even if some people are just getting by or taking out loans or using welfare support money, lot’s of people pay for alcohol, drugs, gambling including lottery tickets etc.
IF they had instead invested that money in the stock market, well yes, they would probably be a lot well off. But for those people, you might as well be talking into empty space.
On the one hand, I agree. Personal responsibility is key.
On the other hand, most people do not start out with the advantages I did, including a grandfather who did, among other things, pension law. And the luck I had with getting a job at 25 with from day 1 fully vested 403(b) with 7% employer match and a boss who told me to max it out to get the free money. I missed the first year of this, but he educated me.
The bigger point is that no matter how much personal responsibility I acted with, if I had begun from a position of debt, compounded interest would have worked against me. And to a large extent, I believe the system is largely rigged to take people’s money rather than to help them achieve wealth.
Yes, I agree the so-called system is rigged to take people’s money.
State and federal governments have been taking advantages of peoples’ needs (or inclinations) to smoke, drink liquors, gambling in state and national lotteries and now legalized sports gambling on-line hoping to strike it rich, so as to raise tax revenues. Hundreds of billions of dollars are smoked and drunk and gambled each year by people who instead could be investing that money. GO FIGURE!!
Maybe if some of them had learned these lessons at an earlier stage (back in school) the outcome would have been different.