Have you heard the story of the poor farmer who challenged the king to a chess match? To the king’s delight he offered the poor farmer anything if he should win. The farmer told the king that all he wished for was for each square on the chess board to hold double the amount of rice preceding it. So, on square one there would be one grain of rice and on square two there would be two, and so on. The king, not being a scholarly man, agreed to the challenge. The farmer won the game and the king tried to honour his bet; until, he realised at square twenty one there would be over one million grains of rice on the board.
The same principle is applied to your home loan, but in reverse. The majority of the home loan payments initially go to the interest, but as the loan draws toward an end the amount you apply to the actual principle amount grows larger.
Compounding is a strategy that most wealthy people embrace. In my video about accumulating properties you would see that the more properties you own the faster you build equity in each property. The secret is having an asset work for you. Buy a rental property where the tenant pays ALL expenses and once the property is paid off, you have positive income. Buy enough properties and you have an endless cash flow that will see you retire early.
Robert kiyosaki, famous author of Rich Dad Poor Dad expresses it well when he draws a quadrant that basically has two columns; one where you earn money working for someone else or your self-employed and the other where you own a business or you are an investor. The first column you are a slave to your job and the other column money flows from your minimal input. It might seem simple but for one reason or another most people don’t take the plunge in favour of financial freedom. Most see that the risk is too high.
Did you know that in 2014-15 the richest twenty percent in Australia earned 47.1%1 of the nation’s primary income? That’s shocking when you compare that to the 12.1%2 of households living below the poverty line. That leaves 40.8% of us tied to debt we probably don’t need (or want) and wishing there were ways of climbing out of it.
Some of the richest people in the world (not actors) live quite humble lives. The trick is that as our wage grows the more we spend right? What did you do with your tax refund this year? Did you spend it on stuff? Did you talk yourself into believing you NEEDED that new (insert thing here). Rich people know how to re-invest their money on something that will create more money in time.
Rich people also have very difference habits than most of us. 80% of wealthy people are focused on accomplishing some single goal. Only 12% of the poor do this3.
And of course, as controversial as it is, most rich people don’t hang out with poor people. Rich people tend to have friends who are like minded and therefore contribute to conversations around wealth and business. That’s not to say you dump your friends no, just build on your circle of friends and stay open to developing friendships with people who are living your dream now. If you want to own a property empire, then go to seminars with people who want the same thing. Talk online with people who are doing it and the most important thing is READ. Understanding the path you want to take will give you the knowledge that you can share with others and in time you will form new connections.
Where do you see yourself at the top?