Just Get Started
Executive Summary:
I first learned this lesson during the snowdays of my childhood and it’s remarkably relevant to your investments. As the old saying goes, “You don’t have to be rich to invest but you have to invest to be rich”. Compounding is one of the most powerful tools in our personal finance toolbag. It works best when the growth starts early and it remains uninterrupted for years. Your future self will be happy you did.
Growing up in Denver, CO every winter consisted of me impatiently waiting for the next snowfall. Mainly because it meant I might get a snow day but also because I loved playing in the snow. So how does snow in Denver relate to personal finance?
Snowmen!
Snowmen relate to personal finance because just like snowmen don’t magically appear in a blizzard, you won't magically be rich one day. Wealth and snowmen both have to be built. If you want to build a snowman or your wealth, the first thing you have to do is just get started.
The base of a snowman takes the most effort. To build a big snowman that will last, you have to start small. Every snowman begins as a small snowball packed tight with your hands. Hardly a Frosty The Snowman look-alike.
Then you take your packed snowball and begin rolling it across the snow. The small snowball starts to grow slowly, then faster, then suddenly the snowman's base is too big to push any further. Once you take two more snowballs and grow them into a body and head, your snowman is complete. You can then retire to your warm house.
Throughout our lives, we will want to accomplish so many things. As a kid, I wanted to build a snowman, but today I am building a financial planning firm dedicated to helping lawyers live the life they deserve. But just like a snowman will not appear in a blizzard, a lawyer's dream life will not become a reality just because they graduated from law school.
If we want something in life, we have to be the ones to make it happen. The first step is you have to just get started. I just got started launching Developing Financial. It was a lifelong dream to start my own business. Today I can now say that I have done that.
What do you dream of but have yet to start?
For most people, financial freedom is a dream. Financial freedom is when we no longer need to work to pay for our lifestyles. Financial freedom allows us to live the life we dream of without worrying about money. If you want financial freedom then the best step you can take is to just get started.
Take, for instance, two lawyers. The first lawyer graduates law school and starts investing some of his income. At age 25, he invests $1,000 per year for the next six years then stops contributing. The second lawyer is nervous about investing but won’t ask for help. For six years the second lawyer never invests their income. After talking with the first lawyer at a BBQ, the second lawyer decides to start investing. The first lawyer graciously shares his investment strategy with the second lawyer. This strategy happens to grow at exactly 12% every year.
To catch up to the first lawyer, the second lawyer decides to invest $1,000 every year from now on. The second lawyer will contribute $30,000 by the time they are both 60. This is $24,000 more than the first lawyer, who stopped contributing after $6,000. The first lawyer will not contribute anymore but his investments will continue to grow by 12% each year.
Surely, the second lawyer, who will invest $30,000 over his life, will catch up to the first investor before retirement, right? After all, the first lawyer only invested $6,000 then stopped at age 30.
Wrong!
At age 60, the first lawyer will have a portfolio worth $272,300. The second lawyer will have a portfolio worth $270,300. The first lawyer will retire with roughly $2,000 more dollars than the second lawyer despite contributing $24,000 less over his lifetime.
How is this possible?
The simple answer is the first lawyer just got started.
The first lawyer retired with more money because of compounding interest. Compounding interest is a financial term describing how investments grow by an increasing amount even though the percentage change in the investment's value stays the same.
This is not an easy concept to understand so here is an example to demonstrate compounding interest.
You have two investments. The first costs $1 that grows by 10% each day. After the first day, you would have $1.10. The second investment costs $1 that increases by $0.10 daily. So after the first day, you would have $1.10 too. This is the last day that the two investments are equal.
The first investment will not grow by $0.10 the following day. It will increase by $0.11 because 10% of $1.10 is $0.11. Each day a larger amount is added to the previous day's balance, resulting in an incredibly powerful compounding growth.
How powerful?
At the end of 40 days, the first investment that grows at 10% each day has increased to $45.26. The second investment that increases by $0.10 each day has grown to $5.
This is why just getting started is so important. Notice on day 30, the first investment is only worth $15.86. It grew nearly $30 in the last 10 days. Imagine if you had waited 10 days before investing over these 40 days.
The key takeaway is that “just get started” isn’t a self-help book title (although it would be a good one). It is a reminder that in finance and life, time gives you the best chance for success. You will be better off in the future if you start today.
Your path towards a career in law started well before you graduated from law school. Your starting point was probably a small step but it started you in the right direction. Then you took another step forward, followed by a bigger step, and before long you are where you are today. The next step is taking control of your finances so you can compound your career success to fund the dream life you deserve.
You will not become financially free overnight but you will never be financially free until you just get started.
Taking the next step towards becoming financially free may feel overwhelming. If you would like to discuss any financial questions or concerns, sign up for a free Meet & Confer Meeting. This meeting allows you to talk with financial planner regarding your questions and concerns. Together we will decide if the Developing Financial Process is something you would benefit from. Sign up today!
Disclaimer: Nothing in this blog should be considered financial advice or recommendations. Your questions are unique to you and your own personal financial circumstances. You should consult with a financial professional before making a financial decision. See full blog disclaimer.