Unbelievable Power of the Money Momentum Matrix
Table of Contents
The Money Momentum Matrix
Unbelievable Power of the Money Momentum Matrix
The Mathematics of Financial Independence (FI) are not hard.
The most important factor about financial independence that you need to remember is this, the earlier you start the easier it is.
That’s worth sharing…
What does that mean exactly? Well its essentially the power of compounding, or the compound effect.
Einstein even once said it: “Compound interest is the 8th wonder of the world. The person who understands it, earns it…the person who doesn’t pays it.”
If you look at the Money Momentum Matrix below, you can see the power of compounding clearly.
I call this the Money Momentum Matrix.
Because after a certain critical mass you begin to gain unstoppable momentum and it is powerful for generating more and more wealth.
Your wealth begins to attract more money at a phenomenal rate, like a snow ball gathering size and speed as it rolls down a hill.
There are four key elements to the speed at which you earn, they are:
- The size of the regular deposit
- The interest rate at which your money compounds
- The frequency of compounding (is it every month or once per year)
- The number of years that the balance is compounding
You can see the exponential effect in the table above.
Let’s take a look at an exaggerated hypothetical example to illustrate the power.
For example, take a look at the last column in the Money Momentum Matrix above.
If you were able to put $10,000 away per month for 1 year, you would make $125,656.
If you could put away $10,000 per month for 5 years, you would have 6 x the original amount, $774,371.
If you double the timeframe, to 10 years, the balance has more than doubled, to $2,048,450.
If you double the timeframe again, to 20 years, the balance has more than tripled, to $7,593,688.
Finally, if you double the timeframe again, to 40 years, the balance has exploded to more than 8x the 20-year balance, to $63,240,796.
So, what are the practical takeaways from this theoretical example?
#1 - Start Now
The earlier you start in life the easier your path to retirement will be. You have the compound effect in your favour.
A great book on this, is the Compound Effect, by Darren Hardy
#2 Consistency is Critical
Especially in the earlier years. To get momentum, you need to be saving and investing those savings every week/fortnight for a number of years.
#3 The Compound Effect is Always Working (for you or against you)
Because of the compound effect of time, even putting in only $200/month for 40 years with an interest rate of 10% (compounded monthly) will make you a guaranteed millionaire.
#4 Increase Your Savings
Find a way to increase your savings rate so that you can speed up your rate to FI and you will be “gettin’ there…faster!”.
Check out my Toolkit page for some great Banks, Hacks and Apps to help you save money.
#5 Invest the Savings
You need to invest what you are saving.
The compound effect, works best with a higher interest rate, as you can see from the matrix.
Remember the banks are only paying about 2.5% (before tax and inflation) over the long term whereas the stock market will pay about 7% (before tax and inflation) over the long term.
Here is a quick step you can take to gain easy access to begin investing:
Set up the CommSec Pocket Investing App:
- Download the App from iTunes or Google Play
- Set up a linked CDIA account (commonwealth direct investment account).
This is for holding your money that is not currently invested in the stock market.
The App also uses these funds for the trades that you have executed and to hold the dividends which are no reinvested.
Check out my review of the CommSec Pocket App below here: Commsec Pocket App Review.
#6 Set up an Automated Investment Plan (AIP)
Figure out a way to automate your investing. For example,
- Set up a regular fortnightly deposit to this CDIA account.
E.g. start with $50 or $100 per fortnight. Then build the amount from there.
- Set a regular time each fortnight in your calendar to invest the money you have saved from your pay cheque. E.g. Friday at 7pm on pay week.
Or better yet, set up an automated investment system in the CommSec App to invest on your behalf.
#7 Get Your Partner Onboard
If you can combine your mental, spiritual and financial energies on this then the multiplier effect will work even faster in your favour, as you are both working towards the same goal
Now you are aware of the unbelievable power of the Money Momentum Matrix. You need to take action on this.
The multiplier effect is in action. If you want to tap into it, you need to take some steps to start surfing the wave.
To start now do these things:
- Download the CommSec Pocket App
- Register with the CommSec Pocket App and set up a CDIA account.
- Set up a regular deposit, on pay day, to this CDIA account from your pay cheque or your normal bank account.
- Set up a regular investment schedule in the App, or set up a time when you do this manually every fortnight, e.g. pay day.
Be an outlier, get there faster!