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How to build a money-making machine
Leverage the power of compounding to reach financial independence
Do you find yourself wondering how you’ll make enough money to achieve your financial goals? Are you dreaming of retirement but can’t imagine how you’ll find the money to do so? Is traveling or another large goal at the forefront of your mind?
Don’t be discouraged if you’re unsure of how you’ll achieve these goals – you don’t have to win the lottery. You don’t have to spend your life as a business operator instead of a true owner. You can absolutely become financially independent in your life without ever having to make a fortune in annual income. You just need a money-making machine.
It starts by giving up the illusion that you have to hit a home run or make a giant score and instead deciding right now to adopt an entrepreneurial mindset. The idea is to make your money work for you – so you don’t have to. There are many high-income skills you can learn to make yourself more money, but some of the best money-making machines don’t rely on special skills or knowledge; they rely on the concept of compounding.
The power of compounding
Compound interest is interest that you earn on both your principal savings and the interest you’ve accumulated on those savings so far. Every time you earn interest, it’s reinvested back into your account along with your initial principal. The power of compound interest means that you then earn interest on the total amount, or “interest on interest.” This makes your investment grow more quickly, and you don’t have to do a thing. It gives you an insurmountable edge by allowing you to continue building your net worth for life.
Here’s an example from Burton Malkiel, author of the classic finance book A Random Walk Down Wall Street. Imagine two brothers, William and James. William invests $4,000 annually starting at age 20 – and at age 40, he stops. His brother James invests $4,000 annually starting at age 40 – and at age 65, he stops. Which brother has more money in his account at the age of retirement?
William, who started his machine to make money earlier, has 600% more. William ends up with $2.5 million, and James – who saved all the way to 65 – has less than $400,000. That’s a gap of over $2 million!
When is a good time to start investing? The answer is always as soon as possible. The best part about this advice is that you can take full advantage of the power of compounding to start building your money-making machine today. Here’s how: Make the most important decision of your life right now by deciding what portion of your paycheck you will pay yourself – off the top – before you spend a single dollar on your expenses. Many advisors recommend saving 10 to 15 percent of your pre-tax annual income. Decide on your number today, and stick to it.
The best money-making machines
You’ve got your number, and you’re ready to invest. So how can you leverage the power of compounding?
1. Money market accounts
A money market account is a great making-money machine for beginners. It’s like a savings account, but with higher interest. And unlike a savings account, it provides some of the functionality of a traditional checking account, such as using the account to write checks or use a debit card.
2. 401(k)s or IRAs
401(k)s are employer-sponsored retirement savings plans, while IRAs (individual retirement accounts) can be set up by any individual. With either option, your money will be invested in a portfolio of investments (index funds) you can choose. These are great money-making machines for beginners, although you’ll want to watch your fees.
3. Dividend stocks
Dividend stocks are a form of stock investing that regularly pay out dividends to shareholders. They’re usually larger, stable companies, and while you might not get as large of a return as with more volatile stocks, you will likely get extremely reliable payouts. Over time, dividend stocks really add up.
4. Real estate investment trusts (REITs)
Real estate has always been one of the best money-making machines, but it requires a large up-front investment. That’s where REITs come in. REITs are groups that pool resources to buy and manage commercial real estate. You can invest less up-front and still gain the benefits of real estate ownership.
The rest of your life will be determined by your decision to use compounding interest to create lasting wealth for yourself and your family. It’s the simplest way to build a making-money machine that works while you sleep and get started on the path to financial freedom.
Compounding is just the beginning. Take control of every aspect of your finances by committing to constant, life-long improvement and feeding your mind the right fuel. Get Tony Robbins’ best-selling book MONEY: Master the Game, and discover how to win the financial game – and the game of life.