In the last articles I described 4 steps to the financial freedom. Today I am going to speak about 5th one, and it will be answer to do question: “What should you do with your profit, when you are debt free?” (By debt I mean any loan which is tide up to your liabilities, not to assets.)
The answer is pretty simple. You Invest.
Imagine that you generate profit 500€ each month. Now imagine two scenarios. In first scenario, you just 500€ aside each month, and they do nothing or very little on you savings account. If you do this for 10 years, you manage to save 60 000€. Not bad, right?
But, what if there is another alternative? Let’s imagine the second scenario where you put aside 500€ per month, invest it and then reinvest the return. For example you invest 500€ in advertisement and next month it brings you 510€ back (which is 2% return on investment — or in other words, you just made 10€). Next month, you will have 1010€ (500€ from this month + 510€ from previous month), you invest that amount and you make another 2% (now you have1035€). Imagine you do this for 10 years. What is the outcome?
244 129.08€ which is roughly ~ 4.06 times more if your money would do nothing.
Now imagine that you can do 5% return on investment — which is certainly achievable with small amount of money at the beginning (not sure about higher amounts, because I have never been in that position).
You would end up with 3 479 119.86€ which is ~ 57.98 times more than case where your money does not work for you.
And remember, you are putting aside 500€ per month for whole period of time! Can you imagine what will happen if you actually increase saving amount also by 5% each month? (almost 20M€ in 10 years).
Compound interest is simply magic
(If you are interested how you can use compound interest in self-improvement, read this article.)
Now the question is: “How to get return on investment each month?” I am trying to answer this one for a long time. The best answer which I have right now, is starting your own business. We live in free country where everybody can do this, so appreciate the opportunity! :-) Now, there are some rules such as: you should be really passionate about your future business, so don’t just start doing something just because you want to make money (I wrote couple of lines on this topic here). I made that mistake twice, so do not follow my footsteps :-).
Anyway, that would be it for today! Tomorrow, I will speak about how to set up your bank account, so you can control your way to financial freedom as much as possible.
Thanks for reading! You just invested your time into something which might help you in improving things in your life. That is not a small thing! You should be proud on your self! You are awesome!