The story of Theodore Johnson has become the stuff of legend. How a man who never made more than $14,000 per year came to be worth $70 million dollars naturally got a lot of peoples attention. He did it simply by saving. He treated his saving as an obligation just like paying taxes or buying food. Money came out of his paycheck and was put away as if he had no other option. It is the concept financial planners refer to as “paying yourself first”, and his method is something that the average person should be able to easily duplicate, if someone would just explain in simple terms how it is done. That’s what I hope to do for anyone interested.
In my recent post “Getting Rich is Actually Easy“, I had a response from a commenter that said, “I dont think that to have an interest of 8.5% is that easy, not at all.” I’d like to thank them for pointing this out. An interest rate of 8.5% would be difficult, if not impossible to find. The confusion comes from the use of the term “compounding interest.” Money invested well compounds, but it doesn’t necessarily come in the form of interest. It may come in other forms, such as dividends or capital gains.
When we use terms like capital gains, some people assume, wrongly, that this is where it gets complicated. When they hear someone talk about the stock market, they think it’s dangerous, risky, complex and beyond the reach of the average worker. Again, this is wrong. If you have a computer, you likely have easy access to stock market investing, and if you understand some fundamentals, you can invest with low risk, and easy self-management of your investments.
The next article in this series, “Understanding Investing for Wealth Is Easy”, goes on to explain one method I use for investing in the stock market that allows me to sleep easily at night and make returns that compound at much higher rates than any saving account is likely to offer.
In the following two posts, I give my humble effort at explaining how I go about this..