Do you want to experience the 8th wonder of the world?
Rinse and Repeat!
This week started on a crazy note. The government of the country I live in decided to make it hard for citizens to have access to cash. This is a country where 60% of her transactions are conducted in cash. There is a joke flying around everywhere that everyone knows the meaning of “Cash at hand” and “Cash in bank” now. (Are we not all accountants now?). I understand the logic behind the drive for a cashless economy, but the manner of approach is terrible.
I have tried writing this newsletter three times but every time I tried, I found it hard to go beyond the first line. Nevertheless, I am gonna do what I have to do. This is the bedrock of my newsletter today. Investment or savings, just like writing, is not a one-day job. It’s a continuous, never-ending process. You have to be committed to the things that truly count.
Have you heard about “compound interest”? It is regarded as the 8th wonder of the world. It was Albert Einstein (Many argue he was not the one) that said, “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” Compound interest is the interest you receive on your interest.
Today, I want to share a perspective many people overlook in savings and investment. There is this subtle thing we do every time we meet our savings target. We spend all the profits and then invest the same amount again. We do this same thing for investments in stocks and interest-paying assets. We forget about compound interest.
This is the word for today: Rinse and Repeat. Never eat all your profits. There is a term in finance called, “Retained Earnings”. Every company knows that you should never pay out all your profits to your investors as dividends. That’s the way to live. I know the profit is relatively small compared to the millions you are looking for but to get better with your finances, you have to be committed to good habits. Always re-invest your profit. Allow compound interest to work for you.
As we enter the dividend-paying season for companies, do not forget the simple investment principle. Rinse and repeat! If you had invested 10,000 in Year 1 of your investment and earned a profit of 1,000. In Year 2, from the profit earned in Year 1, reinvest at least 10%. Your profit in Year 2 will be greater than in Year 1 because you have decided to reinvest your profit. If you do this consistently for 5 years, the difference will be clear.
Do you want to experience the 8th wonder of the world? Rinse and repeat. Now that you know, walk in it. A popular adage says that "any day you wake up is your morning.” Wake up, rinse, and repeat!
Cheers to an amazing week.
Your Finance Coach,
TL.
Thank you very much, TL