How do you know if you're poor?  

You're poor if you're in financial survival mode, trading more and more hours for dollars, only to get further & further behind with your money. How does this happen?

You lay awake at night, wondering "What am I missing?" You've tried everything. You've put in the work. You've hustled harder. Still, you can't even stand to look at your accounts because they will only confirm what you already know - you're broke.

What do rich people know that you don't?

Rich people use their money instead of getting used by it. They know the difference between compound winning and compound losing.

How money works in our capitalism-based society is that investments of any kind (stocks, crypto, real estate or growing a business) grow over the long term because of compounding interest and return on investment (ROI). Meanwhile, debt also compounds and increases over time due to compounding interest.

Let's do the math and see how this works in real life.

Let's say you have $11k in credit card debt and you're paying $250 per month. you will pay it off in 8 years and will have paid back the original $11k plus an extra $13.4k compounded interest. Most loan & credit card companies compound this additional interest daily, adding to your balance every single day. That's Compound losing.

Now imagine this, if you start investing just $400 per month and earn a conservative 10% interest, in 10 years you will have $80k, of which only $48k was your original investment money. The other $ 32.7k you earned through interest without having to do or add anything extra. Thats Compound winning

Rich people don't sit around hoping to hit the lottery, they grow their wealth systematically.

According to statistica In 2022, nearly 2,000 of the world's 3,194 billionaires were self-made, while only 317 of them inherited their wealth.

Take the simple example of Marjorie Bradt whose story was featured in the book The Millionaire Next Door. Rather than taking the little yearly dividend payouts from her AT & T stock, Marjorie chose to have them reinvested. The results of this compounding turned her $6k portfolio into a 1 million dollar asset. All without Marjorie having to do anything to manage it over the years. And this does not mean you have to grow your wealth slowly. The compounding system can be used in different ways by different people, the underlying mechanism does not change. That's the power of compound winning.

The 75/15/10 Formula

Rich people have money plans, not money problems. Every single one of us is capable of formulating and following a plan to grow & compound our wealth. The easiest and most popular way to get started is with the 75/15/10 formula. It's a simple way to budget your money by diverting 75% to needs, 15% to long-term investments, and 10% to short-term savings. You want to automate this so it happens as soon as your paycheck hits the bank so you're not tempted to spend the money thoughtlessly. Have the 3 allocations go into separate accounts, then, schedule a regular time every month to sit down and manage your investments strategically.

"Once you have a plan, you don't have a problem, you have a project." - Charlie Munger

Your shift from poor to wealthy begins when you leverage compounding in your favor. It begins when you stop being just a consumer and start being an investor. But most people don't even know this because we are not taught personal finance in our education system, we have to take control and learn it for ourselves.

Share this newsletter with someone who wants to stop being poor.

Until next week!

Kristen