Personal Finance Learning Guide
<<< Section 8: Investment Strategy: Decreasing Debt
<aside> 🗒️ In this section: we explore how to grow your money (aka secure that bag 💰) by investing in assets that go up in value. We also help you understand the power of compound interest and how it makes the "money flywheel" go faster 💪🏽. Next, we'll cover advice on understanding risk in Section 10, what to actually invest in Section 11, and portfolio strategy in Section 14.
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<aside> <img src="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/19a471e1-431c-4a7d-aa7f-2671d539b0df/Favicon-simplify.png" alt="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/19a471e1-431c-4a7d-aa7f-2671d539b0df/Favicon-simplify.png" width="40px" /> Your mindset to grow wealth should be centered around one thing: over time, increase the number of investment assets you own which appreciate in value. Let your $$$ make $$$ for you while you sleep (passive investing).
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https://twitter.com/naval/status/1002103497725173760
How to earn money while you sleep?
How to earn money while you sleep?
You first need to have money to buy investments. There are several ways to do this including 1) increasing your income by getting a raise, finding a higher-paying job, or doing a side-hustle, 2) decreasing your expenses via a stricter budget, and 3) increasing your income through investments that make $$ for you (such as real estate or a business).
<aside> <img src="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/e9058289-9fc1-4ffb-b80b-5cdb89eebf4a/Favicon-simplify.png" alt="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/e9058289-9fc1-4ffb-b80b-5cdb89eebf4a/Favicon-simplify.png" width="40px" /> As discussed in Section 4, start with decreasing your expenses. Cut down on at least one expense you can live without and be aggressive in paying off debt.
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"Money makes money. And the money that money makes, makes money" - Benjamin Franklin
<aside> <img src="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/fee4912c-2ed7-4e03-b59a-ae5b250bd337/yawn.png" alt="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/fee4912c-2ed7-4e03-b59a-ae5b250bd337/yawn.png" width="40px" /> TLDR: The magic of compound interest happens when you hold on to investments that increase in value over a long time ⏱️. Be patient and let your investments make money for you.
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Let's imagine you invested $10,000 into an appreciating asset that increases in value by 10% every year. You might say "Great, that extra ~$1,000/year (10% of $10,000) sounds nice!" and might be able to calculate in your head what happens over the first few years. However, the true power of compound interest is that exponential growth occurs as the 10% return gets higher and higher over time. In the example below, after 5 years, your investment is worth $16,000 (~$6,000 of profit). However, by year 25, your investment is worth over ~$108,000 and more than 10 times your initial investment - in fact, the 10% gain in year 25 alone is equivalent to your starting investments of $10,000. Here's another great example of compound growth from famed motivational speaker Tony Robbins: if you invest $300/month for only 8 years starting when you're 18, that will grow to ~$2 million dollars by the time you're 60!
The power of compound interest: the 8th wonder of the world!
The last thing we add to the "Money Flywheel" (from Section 6B and Section 8) is investing and compound interest. As your investments generate more $$ over time through the power of compound interest, they generate more income for you, which then in turns allows you to save and invest more.
