The Power of Compounding in Wealth Creation.

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Compounding as it relates to finance is a system whereby a person re-invests the profit he or she has made from a business. Every person that commits any amount of money within a certain period expects profit. Some people have plans for their profits even before it is set.

But with compounding, you delay gratification. You use discipline to forgot what you would have enjoyed from that profit to expand your investment. What this does to a person's finances is that it builds oceanic wealth. And in a matter of time, your business or investment portfolio would be so large.

With compounding, after a period of time, your investment would be so huge that when once returns come in, it would be so huge. This is one secret of wealthy people.

 

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1. Develop a "Wealthy" Mindset

Without doubt, your mindset is the single most important factor that will determine whether you will be wealthy or not. True wealth and abundance come from having an affluent psychology. You gotta remove any disempowering beliefs you have about yourself or money. Buy yourself a copy of Napolean Hill's "Think and Grow Rich" if you want to understand how your thinking will make you wealthy (or not!). Whatever you think about, you bring about i.e. Law of Attraction.

2. Spend Less than you Earn, Invest the Remainder Wisely.

The average person is spending 105% of their earnings i.e. they are in debt. Debt is only good if it's for building assets. This is good debt! You must have a spending plan for your life to make sure you only spend what you have and then save and/or invest what remains. It is recommended that you save at least 10% of your earnings. Finally, when investing, only take investment advice from someone who is as wealthy as you want to be.

3. Learn the Language and Mechanics of Money

Making money and becoming wealthy can be a bit like learning a foreign language. There's lots of terms like: Assets, Liabilities, Liquidity, Net Worth, Gearing, Leverage, etc. and you must know what they mean in order to become a good investor. The mechanics (tools, strategies, investment vehicles, etc.), also need to be learnt so you put them into practice knowledgeably.

 

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2. Spend Less than you Earn, Invest the Remainder Wisely.

The average person is spending 105% of their earnings i.e. they are in debt. Debt is only good if it's for building assets. This is good debt! You must have a spending plan for your life to make sure you only spend what you have and then save and/or invest what remains. It is recommended that you save at least 10% of your earnings. Finally, when investing, only take investment advice from someone who is as wealthy as you want to be.

The problem is if the people's salaries or earnings are just for themselves it is something but if he has a family and children this will differ and then you will, for example, face some financial problems during that time. That leads to 105 % spending for their earnings.