I’m loving the ebook Save and Grow Rich by Roger Caran. I’m almost finished reading it and then will post my notes and quotes from the book. Roger’s book really made me think about interest (rates) differently.
Basics on interest rates
I’ve heard of the rule of 72 but I certainly didn’t “take it to heart” until now. The rule of 72 is: Divide the interest rate into 72 and that’s the number of years it will take the money to double. (Also realize this rule always works in the favor of credit card companies and such, too, ouch!)
I’ve known the “power” of compound interest since high school and it was ingrained that if I start saving young, then it will compound turning it into a lot more money. Why? The rule of 72! In Bob Proctor’s “Born Rich” series that I’m going through pointed out if you save $20 a week for 40 years and get 14% interest you will have well over $1 million dollars! Pretty cool!
Anyway I’ve known all that stuff, but haven’t fully taken it in. All of the personal development I’m doing talks about how in order to really learn something you have to get emotionally involved in it. Well, now I have with interest!
So my “ah ha” about interest…..
Live off the interest that a large sum of money generates! That’s how foundations, trust funds, etc. work. You never touch the principle EVER and live off most (but not all) of the interest. If **correction WHEN** I have a million dollars in the bank if I get 6% interest I’d get $60,000 a year as passive income just from the interest. Hmm, that’s my “secure plan” with passive income of $5000 a month!
So what if I get 10% interest on my million dollars? Then that’s $100,000 a year! Or let’s say I have (only) $500,000 in the bank. Well if I must generate $5000 a month passive income then I’d better make sure my $500,000 is getting 12% interest! I really get why you need to look at ROI so closely now. For me, it’s all about passive income which will get me out of the rat race!! I really see the power of being a private or hard money lender as I can get pretty high percentage rates on my money!
The most interesting thing to realize is that if you look at income, it’s actually easier for most people to have a job and earn $5,000 a month than create $500,000, get 12% interest and receive $5,000 a month. Now I see why most of the world will work for money instead of have money work for them!! People strongly believe it is way too hard to get $500,000 so they never will. Unfortunately because they never try, they’ll never become the master of money. Once you have the $500,000 then it goes to work and never stops, ever!!! You never spend the principle, just live off of the interest and always just a little less than the total interest so it continuing adds to the principle.
I’m not set on one way to create money. This journey is expanding my possibilities that there are infinite ways to make money and I’m pursuing ones that have a passive income aspect. I won’t have a job ever again! I need to generate money to live off of initially (passively!) and then work on building my giant principle and live off the interest. Talk about security!! Having millions in the bank and/or spread out in assets and just living off the interest my money produces. You’d never even touch the principle. I really get how money “works” for you.
I’ve heard it many times: Money is the best slave but the worst master!