Welcome back in this episode
We are going to address what this compound interest mean. This is a very
misunderstood concept even by people who work with money like
CPAs financial planners and tax attorneys and you'll see why
but this is important because when you can harness the power of compound interest
Which is the first marvel of wealth accumulation?
You will be able to soar financially and be able to double your money
Every year or two years instead of waiting
30 40 50 years to double your money as we proceed
I want to transform your vision to a brighter future
Overcome the obstacles that a lot of people have with regards to compounding versus linear
Growth and give you the specific action steps on how you can experience compound interest to be able to thrive
So compound interest is what makes the world go round
As a financial strategist for more than 45 years
I have appreciated the fact that Einstein called compound interest the 8th wonder of the world
it's what actually allows in all types of things with nature a
sperm and an egg to fertilize and within eight hours by
compounding by making two four eight sixteen cells
within eight hours into
Billions of cells as a young embryo is beginning to develop
That's compound interest. Let's talk about how this relates to money
You need to first understand the difference between a compound growth and linear growth
Linear growth might be taking 20 steps. That's linear
but if you were to double
The amount of steps every time you took a step instead of 20 steps. You take over a million steps
Now this is what a lot of people do not understand so oftimes when I teach advanced continuing
Education to CPAs and tax attorneys. I'll say so how many of you understand the compound interest and there you go. Yeah, I
Live all their lives. We thought this was a best continuing education. Mr. Andrew
I said it it is and then I give them all a sheet of paper an
Eight-and-a-half by 11 sheet of copy paper. This happens to be typical 26 pound copy paper
If you don't know what that means, it just means that this can hold 26 pounds before it rips. Did you know that?
Well, I tell them to take a sheet of paper like this and it has printing but I don't let them look at the printing
And I say okay. I want you to fold this sheet of paper in half
like this and
They all do it and I say now let's fold it in half again
And so they hold it in half again
And of course and I say this is hamburgers dial. Let's see if you fold it in half this way
That's a hot dog style. So we want to fold it in half again hamburgers down now I say
Imagine if you could fold the sheet of paper in half
48 more times a total of 50 times now you physically can't do that why because of the bolts?
but just imagine for a moment that you could fold this in half 48 more times a total of 50 and
I invite them to write down on their sheet of paper their estimate about how thick
This would be if you folded it over 48 more times in some form of measurement
millimeters centimeters can choose yards miles and so these sophisticated
CPAs and financial planners will write it down and I'll go around so it's old. What's your guess and some say Oh,
3/8 of an inch
Someone say happen and some say a yard
Every now and then somebody goes a mile and they get left out of the room Yeah, right a mile now
I understand compound interest. I didn't have a calculator the first time I did this exercise I said Oh at least 2600 miles
everybody
Just left me almost out of that room. And then I say what is this doing every time you fold it in half?
It's doubling double double double double double
And so I have them
Unfold their sheet of paper and I have been look at these numbers
How thick is a sheet of copy paper Oh
Five one thousandths of an inch thick but if you folded it over just 20 times
Do you know how thick that would be it would be nearly 1 my aha
That's just 20 times
It's a million 48 thousand times thicker because one doubles to 2 to 4 to 8 to 16 to 32 to 64
128 I think it 256 512. Do you know a dollar doubling 20 times is worth a million dollars
That's compound interest and they go Oh My heavens. I
Told you 50
Do you know if you could fold this over 42 times?
It would not be from here to the moon if you folded this over 50 times
It would be and they're shocked
93 million six hundred and forty seven thousand two hundred and ninety three miles high
That's from here to the Sun
In other words if you could fold it over
51 times
You have a double again. It'd be from here to the Sun and back and people go. Oh my evidence
I guess I didn't understand compound interest because these CPAs were guessing three inches in four inches
And I'm trying to get them to the Sun folks. It is a true phenomenon
That is why Einstein called it the eighth wonder of the world
But stay with me because I'm going to show you
What?
Rothschild wealthy Rothschild says was the eighth wonder of the world
So let's say we go out for a game of golf and I tell you on the first hole. Hey, let's have a little fun
Let's just have a bet
At each hole, we'll start out at 25 cents and every Hall in 18 holes will double the back you good
now
First of all, you don't know what kind of a golfer I am
But if you did that and you started out 25 cents on the first hole. Do you know what the 18th hole bet would be?
Over 32,000 dollars
25 cents doubled 18 times
Sometimes I will test these CPAs after I've taught them about compound interest
Or two and I'll say okay. Let's see if you got it
We have this patch of lily pads
every day
the patch doubles in size so if it takes
48 days
For the patch to cover the entire Lake. How many days would it take for the patch to cover?
Half the lake, what's your answer?
most of them say 48 24
No, it's doubling the day before it's full
It would be half full
It's the 47th day is when it's half full because two halves equal a full
This is where people don't understand a compound interest and they get discouraged and they go this is taking so long
Hold on be patient because as it doubles doubles doubles
so for example
I had many clients when I was a financial strategist helping people to prepare for retirement
And when I finally met them they had saved and maybe had a half a million dollars and I showed them how to earn
Let's say 10%
Predictable safe rates of return now that's gonna double your money about every seven point two years
Well, what happened is that five hundred thousand and in seven and a half years might be worth a million and that's yeah
It's only worth a million. I need way more than that ago. Hold on
You've still got a lot of time
it doubles from a million to two million in the next seven years from two million to four million the next seven years and
They're now 860 and they're going to retired 867 the last seven years
It doubles from 4 million to 8 million. It made another 4 million as much as it made the entire
Periods before all added up together. That's the power of compound interest double double double
now the reason why Rothschild
Said well, it's not just compound interest the 8th wonder of the world is compound interest
Tax-free, you know if you pay tax of just 20 percent on
A dollar doubling 20 times if you were to look at this sheet of paper dollar doubling 20 times is worth a million bucks
That's if it's tax-free
If it's tax desert where most people put their money in banks and credit unions you pay tax every year on the growth
So a dollar doubles to two you pay tax of 25 cents
You'll have a buck 75 bucks 75 doubles to 350 you pay tax on that
Do you know how much you'll have instead of a million?
Only seventy two thousand dollars if you pay tax of a third
33% many Americans pay that much between federal estate you won't have a million. You'll only have
$27,000 two point seven percent of what you could have had and that's the way most Americans say
I don't want you to get caught in that trap
I want you to employ and harness the power of compound interest
in a tax-free
environment to
Understand compound interest and harness the power a bit for your future
understand the best vehicles to use so that the eighth wonder of the world isn't just
Compound interest because if it's text as earned compound interest, would you rather have twenty seven thousand or a million?
so the second marvel is
compounding
Tax-free, that's why I have written many books
I teach a lot of different episodes on how to compound your money tax-free
Which is the first and second marvels of wealth accumulation
Compound interest and in a tax-free environment then if you want to learn about safe positive
leverage this will
exponentially increase the compounding of well
so I invite you click on this particular episode on how to achieve financial independence or
On any of the links below you can dive deep in many of the different books and materials and that will help you understand
How you can then harness the value of compound interest for your brighter future.