Many of the big companies, including my employer, offer their employees a “share investment” scheme. In this scheme, the company automatically deducts a certain % of the employee’s salary to buy its stock. I used to participate in this scheme whereby 5% of my salary was deducted and only recently has it increased to the maximum deduction of 15%. I wish I contributed 15% much earlier as I got used to the “reduced” salary while benefiting from the magic power of dividends compounding to increase my wealth which could have accelerated my financial freedom by many years. The decision of being an investor and automatically dedicate part of your monthly income to investment is the best financial decision ever. Companies’ shares purchase scheme is one way but you can also do it yourself by automatically transferring part of your salary to a saving or a stocks investment account. The key is to not have easy access to this saving/stocks account (e.g. no debit card). If you haven’t yet made this decision, please do it now. Allocate immediately 10%, 20%, 30% or more and automate the deduction. Whatever your salary is, you can save this amount and you will adapt to the “reduced” amount while enjoying building your wealth.
Let me tell you a story of an employee in UPS (United Parcel Service) company who never made more than $14,000 per year. He consistently saved 20% of his salary every month considering it as wealth tax (i.e. must do vs. optional to do). He also saved all his bonuses. Do you know the amount of money this employee had when he retired at age 90? Over $70 million. This is again the magic power of compounding!
Albert Einstein said, “Compound interest is the 8th wonder of the world”. You will understand the reason behind Einstein’s statement when you know that a small amount like $485 invested per month at 10% interest rate will save you over $1 million in 30 years if you keep reinvesting the earned interest!
This is the power of compounding that can enable you to accumulate substantial wealth. It is all about consistent saving over a long period with reinvesting interest or dividends.
The first step to creating financial freedom is to tap into the power of compounding. Make your money work for you so you don’t have to. To take advantage of the power of compounding today, you must make the important decision and decide what portion of your paycheck you will set aside and pay for the future. Even the smallest amount of money combined with the miracle power of compounding can give you financial independence without having to make a fortune in annual income.