One of my biggest regret is that I haven’t started investing (in a smart way) 10 years ago. Well, looking at those charts let’s say 8 instead of 10 🙂 Maybe I would write this post from a much warmer place then… I’m old enough to realize that I should have started it earlier, but young enough to remember what went on inside my head those times. In order to be a successful investor you need a few things: money, knowledge and time. Well, I was lacking a few of them…
Unless you are coming from a much more fortunate background, money is something that you generally lack of. Of course as you progress in your career you will have more and more income. Nevertheless I only realized how many ways I could have made some extra income since I started to getting more interested in personal finance.
First of all I could have started a blog. For an extremely minimal or even no investment, the possible income from blogging is limitless. Why haven’t I thought of it before? If you haven’t started already, I strongly recommend you to think about this option. If you don’t know where to begin, please check out my guide on how to start blogging. Within an hour you can already publish your first post. Maybe you will do it just for fun, maybe you will be a professional blogger. The limit is the sky!
Besides of blogging, I could have worked more! There are so many side hustle opportunities out there. Some of those you can do from home (e.g. online consulting), some of them are great for exercising (check out the Postmates review from Financial Panther), but you can name Uber etc.
Even if you invest only EUR 200 per month, based on a 7% average return it would mean over EUR 33k extra after 10 years. If you haven’t started investing yet, do it now!
Nobody gets born with a financial knowledge. You need to educate yourself and the best way to do it is read, read and read. Out of this 3 I haven’t done any…
Nowadays I spend a lot of time reading about personal finance and following other fellow FIRE blogs. I can safely say that what I have learned over these past 1-2 years is probably the most valuable asset for my and my family’s future. Seriously, this should be taught at school. If I started to educate myself about personal finance earlier, I would be much closer to financial independence.
Time is the thing that this post is really about. You just need to keep on continuously invest and the magical effect of compounding will start to kick in. It’s no wonder why Einstein has named compound interest as the eighth wonder of the world. Just look at the below chart and see the difference between compounding interest returns and regular savings with no returns:
You might think that the younger you are, the more time you have, so a young age is definitely in your favor. The only problem is that when you are young, you might have time, but there’s one thing that you don’t have: patience!
Even though I didn’t have much investment knowledge 10 years ago, I was always interested in investing. I still clearly remember opening my first online stock trading account and making my first purchase. I was checking the share price in about every 30 minutes. The next day the price has risen and I have made the decision that seemed the most logical at that time: SELL! I have made around EUR 10 which after deducting the broker fees meant a net profit of EUR 5.
I was extremely proud of myself. Later on I have learned that I can also deal with turbos. With the same amount of investment I can make 100 times more! That would mean EUR 500 profit for the same trade! I already saw myself on a tropical beach, drinking pina coladas.
I have never thought about losing. Of course in a few weeks I did lose everything, which was fortunately only a small amount of money.
My next big idea was forex trading. That’s another way to get rich fast. Maybe I would be much better in guessing which direction the TRY/ZAR currency pair will move by 0.1% within the next 2 hours. Well, I wasn’t 🙂
I was impatient and haven’t realized that I shouldn’t go for the dream of getting rich fast. The slow, boring but safe way was not appealing for me at that time. Investing for 10-20 years seemed to be a lifetime. Now here I am 10 years later and wish I could give my past self a huge kick in the ass.
Now I’m investing for the next 10-15 years in order to reach financial independence. I know I will make it and I know that that time will come soon. This time frame seems much closer than it used to seem 10 years ago. Or especially 20 years ago. But why is that?
There is a theory that says that we feel time passing by not linearly but logarithmically. This means we value time based on how much it is comparing to the time of the overall life we spent in this world. One year passing by when we are 4 years old feels the same as 5 years passing by when we are 20. Both equal 25% of our current lifetime.
Do you remember those summer holidays that just never seem to end when you were young(er)? Or waiting for Christmas? For me it felt like the time passes much slower from the 1st of December.
How many times you asked your parents during the one hour drive to grandpa: “Are we there yet?”
Time is relative. Let me tell another quote from Einstein (he was a smart man you know):
“Put your hand on a hot stove for a minute, and it seems like an hour. Sit with a pretty girl for an hour and it seems like a minute.”
When I was 20, waiting 10 years patiently meant half of my life. At the age of 30 it reduced to 1/3. When I’ll be 40, the same 10 years will mean 25%, so it will feel half as much.
Of course 10 years will still be 10 years. Objective things cannot be changed by subjective emotions, but this is still the way how we feel it. And these subjective feelings can have effect on our long term investment decisions.
The Inflation of Time
There are a lot of similarities between time and money. You might say time IS money. Both can be saved, both can be spent, or even wasted. And based on the above theory, both can be inflated.
What happens when there is more and more money on the market? The value of a single unit decreases. In serious cases there can be so much money on the market that a banknote doesn’t worth more than a piece of paper. In Hungary, during the worst hyperinflation recorded in history, money was literally swept on the streets.
The same applies for time. At the age of 5, you only had 5 years in your life (let’s say 5 units). At the age of 75 you will have 15 times more. One year will be valued less, meaning it will seem like passing faster.
What Can We Do?
Of course we cannot turn back time. But we can try to convince the younger ones to be more patient when it comes to investing. Dear reader, if you are in your 20s, you already have advantage vs my 20 year old self. Don’t rush, take it slow and you will get there much faster! Do you know the story of the tortoise and the hare?
Another thing we can do is to make the first steps for the younger generation by ourselves. From the first day my daughter was born, we are regularly investing for her a small amount via a low cost index ETF. By the time she will be old enough to understand what her old man is talking about, I hope this fund will help her to start her own life with a financial advantage. Meanwhile as she doesn’t know about it, she can’t get impatient either. 🙂
If you like the above theory of time, I encourage you to spend a few minutes scrolling through the webpage of Maximilian Kiener, more specifically his digital project about time.
What do you think about the way we feel time passing by? Have you experienced the same kind of things when you were younger? Please feel free to share your story in the comment section!
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Disclaimer: This post or any other information on the site is not intended to be and does not constitute financial advice or any other advice. I am solely sharing my idea, plan and progress on early retirement.