Four Formulas of Wealth and Poverty I'll make a reservation | Retire at 40
Four Formulas of Wealth and Poverty
I'll make a reservation right away that the number of poverty formulas differs in different sources, but the essence of this does not change. Wealth formula is one.
Munger, a friend of Buffett during the partnership and the current vice president of Berkshire, who once remarked that Buffett thought a $ 10 haircut would actually cost him $ 300,000. As it turned out, his estimate was rather conservative. If the $ 10 Buffett saved from the 1956 haircut had been invested in the partnership, it would have been worth more than $ 1 million today ($ 10 plus capitalized interest at 22% over 58 years). - Quote from Warren Buffett's Investment Rules
Bankruptcy formula
Income-Expense = Debt
Expenses exceed revenues. As a result: credits, loans. It does not depend on the amount of income. You can get 1 million a month and let everything go. There are many examples. About 40% of NBA basketball players have gone bankrupt after their careers. They also owe them to the state and the banks.
Poverty Formulas. There are two
Formula No. 1
Income-Expense = 0
We spend everything that we have earned. And so in a circle. Regardless of the amount of earnings.
Formula number 2
Income-Expenses = Savings-Expenses = 0
Incomes exceed expenses, savings appear, which are ultimately spent in full. For example, they put off their salary for vacation, then they spent everything. Bottom line: again there is no money and everything is in a circle.
Formula of Wealth
Income-Expenses = Savings multiply (% Investment) = Capital
The savings accumulate and are constantly reinvested. Then time and the effect of compound interest come into play.
Variables or how to use formulas
As I understood in due time, the first 3 formulas are not for me. I want to increase my capital every day. So where did I start?
With cost control. After all, you can earn a lot, but spend everything or even go into debt. I have removed all anti-consumption in my life. Then, I started looking for ways to increase income. This process is endless and constant. My savings began to grow even more. Well, constant reinvestment in the stock market and the results came in the first couple of years.
I like to count. And I perfectly understand that the effect of compound interest will reveal itself in all its glory in a couple of years. And even with small amounts, anyone will achieve amazing results.
In future posts, I will go into more detail about the effect of compound interest and the importance of running your finances.
"Today, someone is resting in the shade, because they planted a tree many years ago" - Warren Buffett (c)
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