Once you start getting some serious money together, you’re going to face a major challenge. 

You’ll want to splash out.

Well here’s how to overcome the problem:

Don’t.

Remember the importance of time in the compound interest formula.  Time is your friend IF you let it do its work.

Yes, it’s tempting to buy some of the goodies in life, like that designer jacket that “spoke to you”, or a new car, or a 48” plasma TV screen.

Don’t fall for it.  Instead of wasting your money on consumer junk that will quickly drag you back into poverty – invest it to make more money.

The other variable in our formula is the rate of return, commonly known as the “interest rate”. 

As we saw previously, increasing the interest rate has an even more dramatic effect than the number of periods.  In fact, it’s the single most powerful factor in multiplying your wealth. 

A simple number pattern shows how this works:

1 x 1 x 1 = 1

2 x 2 x 2 = 8

3 x 3 x 3 = 27

4 x 4 x 4 = 64

5 x 5 x 5 = 125

As we saw earlier, the number of periods has a huge effect on your total rate of return.

The more periods there are, the more multiplication takes place.  And each successive period multiplies a larger number than the last one.

For example:

1 x 2 = 2

2 x 2 = 4

4 x 2  = 8

8 x 2 = 16

This is just simple arithmetic, so simple that a child could understand it.  Yet it’s exactly how the rich get richer. 

How much money do you think you’ll earn in your lifetime?

The average person on an average salary is likely to earn hundreds of thousands of dollars.  

And yet the incredible thing is that many people are flat broke by retirement time.  Some people even end up in debt after earning all that money in their lifetime. 

You’ve got to save

Now I can hear you right now….

“I’ll save money just as soon as I’ve got money to save.”

The Formula For WealthBecause it’s the foundation of all great wealth, it’s essential that you understand how the formula really works.

There will be a little math in this section, but don’t worry, it’s simple.

Firstly, here’s the magic formula:

FV = Principal × (Rate)ⁿ

Let’s make it easier to understand by breaking it down:

FV is the Future Value of your investment. 

Principal is the amount of money you start with.

Rate is your rate of return, i.e. the “interest rate” you receive on your money.