Three Steps to Financial Freedom
Principle of the Golden Goose:
The Real Taj Mahal
The Principle of the Golden Goose has been taught for over two decades in finance classes for engineering students. Many have applied this principle and accumulated wealth beyond their imagination. You too can start building your wealth today and achieve financial independence - in threee simple steps:
Step 1: Create flow—of money. Work purposefully and consistently, earning a fair reward. Be persistent.
Step 2: Let the flow work for you—grow your ‘golden goose’ by paying yourself regularly and investing the money wisely - if you can, save at least as much as you pay in taxes. Be disciplined. Save diligently.
Step 3: Go with the flow, don’t dip into it and do not eat the goose. Be patient.
Can you apply the Principle of the Golden Goose to your life over the next 25 to 30 years and figure out how much wealth you can accumulate?
Learn more about the Golden Goose: Masters of the Game - Reaching Beyond the Nexus to Success and Happiness
I can personally attest to the power of the Golden Goose. I started “investing” my senior year of high school, which was in 1997, as a means of learning more about the stock market and investing in general. I was very disciplined about following all three steps outlined above, making sure that I was paying myself with each and every paycheck and every other opportunity in which I happened to have a little extra cash. I didn’t pay particular attention to checking on my funds on an obsessive basis, instead I just focused on contributing as often as I could. Needless to say at the end of my undergraduate education I was quite surprised to see just how much my little investment had grown (not that it is anything spectacular, it’s just that the initial investment was so tiny). Not only did it make me a believer in the power of compounding but more importantly if made me a believer in the power of flow and consistency.
But as Mark said earlier, now is quite likely a good time to asses my goose.
And, a good time to pick up a few goose eggs as well…PC
In today’s market, I think a new step should be added between step 2 and 3: Assessing your goose.
Mark, You got it!
PC
I am now coming up with a value of $862894.32
It’s quite obvious how the lower rate of return makes a big difference even with 5 more years of investing the $10000.
This is correct, Jimy. You see, at an interest rate of 7.2% per year, money doubles every 10 years - so it takes longer to fatten the Goose.
However, is your result for just one investment of $10,000 or for 20 years of investing $10,000 per year - going with the flow?
PC
Yes, it is for investing $10,000 every year for 20 years and not taking it out till the end of 30 years from the first investment. The flow hasn’t been disrupted…
Okay Jimy
Your Goose is worth $1.5 million in 30 years, with just one lump-sum investment of $10,000. But I agree that 10% is high, although this amount invested today woould likely double in less than 7 years…
So, now can you figure out how fat your Goose will become in 30 years, if you invest $10,000 each year at say 7% interest over the next 20 years?
You can use present value equations, tables, or do this graphically with a spreadsheet.
Welcome to the realm of the independently wealthy - even if you have to exercise diligence, persistence and patience (attributes addressed in the first post in this series).
PC
I come up with $1,459,936.86 considering $10,000 to be invested at the beginning of each year (for 15 years only) for a term ending the same time 30 years from the first investment.
Nearly 1.5 million dollars to retire with sounds great! But of course, like Dr. Chopra referred to - maintaining a consistent & reasonable return through the long term, especially in today’s economy, is not an easy task!
Try this as a start:
If you save and invest $10,000 today, it will double to $20,000 in 7.2 years if the growth rate is 10% per year. In 14 years, the amount will be $40,000 and it will double again to $80,000 in 21 years and become $160,000 in 28 years, approximately.
Now, what if you saved and invested $10,000 each year for just the next 15 years? How much would the total amount be in 30 years? I will give you some time to figure it out and will post the answer next week.
PC
P.S. if you wonder whether you can count on a growth rate of 10% per year for the long haul, that is another good question - for a future post in “Your Money.”