Grow your snowball
Investing can seem hard. It doesn’t have to be.
Imagine when you’re building a snow man. When you first start rolling a snowball it takes a long time before it grows bigger. You keep rolling and it only slightly grows. But at a certain point it’s so big that a lot of snow keeps sticking to it with every roll. This works in the same way with money.
Money attracts more money. If you grow your money snowball, more and more money will stick to it. At first it will go slow, but it wil slowly pick up the pace until it grows so fast that you can scrape off some snow and it still won’t stop growing. This way your money works for you and earns you more money.
A quick example to illustrate this. Imagine you invest $10 and earn an interest of 10% per year. After 1 year you will have $10 + $1 interest, so $11 total. If you don’t put in extra money in, you will start your second year with $11 invested. In this second year you earn 10% interest again, so $1.10. This gives you a total of $11 + $1.10, so $12.10. You can already see that your interest will earn interest. This is money that you never had to work for that’s making money that you don’t have to work for.
This also works for debt, but the other way around. Your debt will grow faster and faster over time, it will attract more debt. If you’re in debt, your money won’t work for you. Your (negative) money will make you work for other people.
Principles to build your snowball
Principle 1: Spend less than you earn
The bigger the gap between your spending, the faster your snowball can grow.
Principle 2: Invest the difference to grow your snowball
Where to invest in? You could buy separate stocks in companies through a broker, but that’s risky. Imagine you just put your life savings into a fastfood company and next week you see in the news that this company’s hamburgers are made from cute sad puppies. Now nobody eats there anymore and nobody wants to buy your stock anymore.
A better option would be to invest in a fund like an ETF. This is basically a big basket of stocks that you can buy a little piece of. If one of the companies in the basket goes bad, the effect is tiny as the other stocks are still fine. This way you can spread out the risk.
At most brokers you can invest in ETF’s or other funds. But the easiest way to start is probably through you bank. Don’t sweat the details, start with small amounts until you get more comfortable. Also don’t get intimidated by all these financial buzzwords that people throw around. You don’t need to learn about options and candlestick charts. Investing can be as simple as paying your gas bill.
Principle 3: Automatically invest each month
You don’t want to have to make the decision to invest again every month. Better to set up an automatic deposit from your bank account to your ‘snowball’ fund. Don’t make it too big, you’re in this for the long haul.
Principle 4: Relax, have patience & enjoy life
Your snowball will grow. It won’t be fast, this is no ‘get rich quick’ scheme, more of a ‘get rich slowly’ scheme. But it will grow faster and faster each month. At some point (probably after some years) you can start to take money out of your snowball, as it will attract more money than you take out.
I hope this helps you understand how investing can help you build wealth over time. Start rolling your snowball and don’t forget to enjoy the snow!