Money isn’t everything. It is certainly important, though. In his book Sapiens, Yuval Harari makes the case that money is the only thing to break through all barriers and become universally accepted by humankind.
Speaking in more actionable terms, money can be used as a tool to buy the things you need, comforts you desire, and experiences you’ll never forget.
Lack of money, on the other hand, can be a source of anxiety and pain.
In his definitive book on the subject, Money, Master the Game, Tony Robbins encourages us to think of money as a game. A winnable game. This helps us keep things in perspective—reminding us that money isn’t everything—while also providing us with a positive framework for how to view money. If we know the rules of the game, and take action based off these rules, we can achieve financial freedom.
The following two tenants will provide you with a rock-solid foundation from which to build upon.
UTILIZE THE POWER OF COMPOUNDING INTEREST
Einstein, the man that symbolizes intelligence itself, once said, “Compounding interest is the eighth wonder of the world.” How’s that for an endorsement?
This wonderful thing called compounding interest is the reason investing at an early age is so critical to achieving financial success. If Person A puts away a fraction of the amount of money as Person B, but does so ten years earlier, he can still have millions more than Person B by the time they hit retirement age.
There are a couple things you need to do in order to fully utilize this awesome power:
- Automate your savings so that a percentage comes out of your paycheck before you even see it. This compensates for human being’s extreme loss aversion and also ensures you stay on track.
- Don’t make any withdrawals from this designated account while you’re in the process of saving! In addition to potentially incurring penalties, withdrawing money before reaching your target will cripple the effects of compounding interest.
MINIMIZE TAXES AND FEES
No matter where you live, you will be required to pay taxes. And you should pay your taxes (it is the law, after all). That said, you should never pay more than the minimum required amount.
Maximizing your tax efficiency is another way to earn—or in this case, keep—millions more over your lifetime. Partnering with a fiduciary, one who is legally required to put your financial interests first, is the easiest way to make this happen.
Another way to help you keep millions more of your hard-earned dollars: minimize the banking fees you’re being charged. This one is a bit more difficult (banks usually go to great pains to disguise and hide fees) but it’s certainly worth it.
Utilizing a site that reviews your portfolio and shows you the estimated costs for free, such as portfoliocheckup.com, can be a great help. Doing your own due diligence and asking a lot of questions will also be a great help in making sure you’re not paying for your broker’s retirement out of your own pocket.
Effectively leveraging these two principles can make and save you millions over your investment horizon. That said, this is only the tip of the iceberg when it comes to fast-tracking your way to financial freedom. For a definitive blueprint, I highly recommend you check out Money, Master the Game.