I am often confronted by people who claim to be utterly penniless, and who tell me that it is totally impossible for them to scrape together even £100 to start their own business, let alone £100 or so.
The very first question I ask these people is: 'Do you smoke or drink?' They invariably answer 'Yes' to one or both of these 'vices', and then of course, I move in for the kill!!
I am about to tell you something rather astounding. If you are on of the very few people who neither smoke or drink, then just treat this as a lesson in the incredible power of compound interest. You know what compound interest can do to you if you're on the wrong side of it! Your mortgage runs on compound interest, and so do any loans you have taken out for cars, boats, kitchens or anything else.
Compound interest seriously dents your wealth, because you are charged interest upon the interest upon the interest ad infinitum. It is almost impossible to pay off a compound interest loan. This is why you should strive to become entirely debt-free.
But, of course, compound interest also works for you, if you save money. In fact the power is quite staggering - particularly over longish periods. Most people struggle all of their working lives to pay off a pathetic little £60,000 mortgage. Then, at the age of sixty-five, they try and grab a few years of freedom (on a meagre pension) before they die. But most of these people have turned down a 'golden handshake' worth between £100,000 and £277,000!!! What? How can this be?
Quite simply, this is the money they could have claimed had they given up smoking and/or drinking! I know this sounds far too ridiculous for you to believe, and so I am going to prove it.
Let's take smoking. Now apart from this being the most ludicrous and damaging habit any human being can indulge in, it also, quite literally, costs you a fortune. If you are a smoker, wouldn't you like an extra hundred thousand pounds as a present when you retire, or even much sooner? Of course you would! Here's how to get it:
Assume: An 'average' smoker, smoking 20 a day, costing £3 per pack.
This cost you £3 x 7 = £21 per week = £1000 per year (approx.)./p>
Now instead of using this money to ruin your health, pollute the environment, and add to the profits of the tobacco industry, let's say you stopped smoking and saved this money in a building society account at, say 8% interest.
Do you know how much your account would hold after twenty years?
A few thousand? NO! It would hold a massive £45,000!! Enough to pay off most people's mortgage in one hit. Enough to give you a £350 a month income (roughly) FOR LIFE. Supposing you gave up for thirty years? If you give up at the age of twenty, that still make you only fifty. If you give up at thirty, that makes you only sixty years old!
How much money would be sitting in your account? A whopping-great £113,000!!! Hard to believe, but true. You would have over one hundred thousand pounds in that account. And that's not even investing in the stock market, which would give higher returns.
In these calculations, I have excluded tax and inflation. But I have also excluded inflation on the price of cigarettes, and hence the amount (increasing) you would really save each year. I have assumed that you would just save £21 per week for thirty years.
Now I don't know about you, but I think a hundred grand 'retirement handshake' is a fair old wedge of money, on top of any other benefit you might get (pension etc). BUT IT GETS EVEN BETTER!!
You might now smoke, but you probably drink.
Okay, you're probably not swilling down eight pints of lager every day, but if you are an average drinker, then you consume in the region of two pints a day, or two 'shorts' a day' or two glasses of wine a day.
You don't have to drink this amount every day, of course. This is just an average. Your actual consumption might be more, or less than this, in which case you must make adjustments to the figures I am about to give you.
Now if you drink at the level which is the national average, then you spend £4 a day on drink. This sounds like a lot, but if most people were honest with themselves, they would realize that they spend at least this amount.
£4 a day is £28 a week which is £1456 per year. If you reduced your drinking by £4 a day - then how much would have in your account after ten years?
You would have £21,000!!. After twenty years you would have £66,000! After thirty years, you would have a truly massive £164,000!! Just for staying heathy and knocking off a couple of drinks a day!
Now for the big one:
Supposing you smoke AND drink. Let's say you decide to cut out smoking altogether, and reduce your drinking by £4 a day. How much would you have in your account after ten, twenty and thirty years?
Ten years: Help yourself to £30,000!
Twenty years: Your balance reads £111,000.
Thirty years: You have, in your account, the sum of £277,000 to spend as you like. That's a thumping quarter of a million pounds - near as damnit. I'm not messing around here, you can check the figures for yourself. And, of course, if you invest in the stock market, then you could easily DOUBLE this amount to half a million pounds - and that's if you stick to 'safe' blue-chip shares!!
Fantastic, but true. Smoking and drinking are costing you a quarter of a million pounds!! Now if I'd started this section by guaranteeing to make you £277,000 in thirty years if, in return you would do me a small favour and quit smoking, and cut down on drinking, you would have bitten my ankles in an attempt to get me to tell you how!
Thirty years might seem a long way away (but it soon comes around!). But even after TEN years, you have thirty grand! And all this for stopping trying to commit slow suicide!
Now if you don't smoke, or drink very much, then exactly the same logic and figures apply. By this, I mean you only have to save about £7 a day to get that quarter of a million pounds! Is there something YOU could give up which would allow you to save this (rather small) amount? Before you say 'No', think carefully about your life. What do you waste money on? Come on, it's only you and me in the room!
So Remember to pay off debt until you are entirely debt-free. Then, when you are debt-free, you will start accumulating money at an exponential rate, until you become independently wealthy.
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