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.