This is one of the most important financial concepts we come across. Understanding this is the first step in financial freedom. However, it is also vital to be on the right side of compound interest.
In this video I discuss how most experience compound interest yet it is on the debt side. Here is where we need to be mindful of how this affects our financial lives.
▶️ 3Speak
Yes we need to compound our earnings and the easiest way for people to see it in HIVE is just to stake their HIVE. You get more of it even if you do nothing and if you curate/lease it out, then you can get even more gains.
Staying out of debt is annoying but you need debt to be in your favor. The biggest issue I see is that our current system tracks your debt. You won't be able to buy a house or get a car loan sometimes without a good enough credit history.
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Without a doubt staking is the easiest way to get working on compounding. With HIVE, it pays a little over 3% and then one can start curating. This will begin to provide some returns coming in especially after the next HF.
As for the current system, I think DeFi is really going to put a dent in the lending market over time. It will take some time to mature but we can see how things can change. There is a lot of collateral being generated in crypto. That can be leveraged for loans and things of that nature.
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The thing about compounding interest is that is not as sexy as get rich quick schemes and people aren't educated enough financially to have the patience to reap the rewards of compounding interest
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Absolutely correct. The biggest factor in compound interest is time. The longer the time period, the better the results of compounding. This is in direct conflict to the get rich quick mindset you mentioned.
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@taskmaster4450le There are some great wisdom of what you are saying in this video! You really get to show us what compound interest is all about! There is a reason why I do not buy my cars with the banks- or other creditors money. Invest first and later you can buy a car, I do not think you will regret it 😇
Very hard to argue with this logic.
The less consumer debt one has, the better.
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Yes indeed, and the shorter is the way to FI!😎
I agree too many today still take out loans and get into debt. If you can't pay cash then don't buy it as there is no such thing as a good deal as they are all making money out of you. Compounding needs to be in your favor and is truly fantastic when you realise how it works.
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Other than big ticket items which might be needed like a house and car, I agree completely. There is little that is "needed" to buy on credit unless one is in the unfortunate situation of having to use debt (like credit cards) to pay bills.
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I read today that it is essential to compound your assets in order to really best inflation, especially if we see inflation start to rise.
A technique implementing CI on Hive I've experimented with is delegating to @tipu and then using the reinvest function. Essentially this compounds your Hive Power.
I admire anyone who has the patience to engage in CI for 10 years plus. What length of time would you recommend for CI?
Some food for thought!
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As long as possible. Warren Buffett has compounded for over 60 years. Look where that got him.
The thing about compounding is the biggest factor is time. So the longer it goes, the greater the pile is.
$1,000 compounded over 10 years at 10% is not nearly as big as the same scenario compounded over 30 years.
We should have some money that is set aside to compound over decades. This is the idea behind individual retirement accounts. Sadly, many of them end up eating the returns with fees.
As for inflation, we are entering a cyclical period. However, do not be misled by that. We are on a deflationary trend over the last few decades and this will only accelerate. Wages are being crushed as automation kicks in. The velocity of money is stalled. And we have technology expanding at an historic pace.
None of that bodes well for inflation.
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What are you compounding your money in?
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If such information would reach school many of those companies bleeding out consumers would probably go bankrupt. Instant gratification is on their side though. Many are not willing to save money ten years until being able to buy a new car or use the old smartphone the extra mile and not pay that much on the damn new iPhone. Most of the people these days have so bad personal finances that's no wonder we're so easily controllable.
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The system is set up by some great minds who know exactly what buttons to push. People really have no chance especially since financial education is purposing omitted.
This is something that we see as a major issue for people. As we spread things out in crypto, we need to pass the lessons onto people.
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Compound interest is crucial and can either make you or break you. It should also be an intro, when done right, to passive income and similar concepts that return residual monies.
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That is very true. If one is compounding their money, it will grow and provide a steady stream of income.
Of course, the reverse is true if what is being compounded is debt. This will continue to grow also.
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The 8th wonder of the world. Compound Interest and with crypto it's taken 10x 100x fold!
So many people fall in on the other side like you mentioned and why banks have become so powerful. Debt can seriously crush your life. But on the opposite side it can create wealth beyond your wildest dreams!
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So true, such an important point to reinforce that compound interest can work against you through debt!
I thought that was Andre the Giant.
Perhaps there are two 8th wonders of the world.
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You are right about "buying the car payment instead of car". In my country all car advertising features monthly payment prices instead of full price. People, especially those younger, just aren't accustomed in thinking long term.
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Summary:
In this video, Task discusses the concept of compound interest and its significance in building wealth. He explains how compound interest works, using examples to illustrate its power both positively and negatively. Task highlights how many people fall into debt traps due to compound interest working against them, emphasizing the importance of understanding and leveraging this concept to make informed financial decisions.
Detailed Article:
Task begins the video by emphasizing the importance of compound interest as a fundamental concept in wealth accumulation. He notes that compound interest is a powerful force in the financial world and can make individuals rich if properly understood and utilized. Task explains that while compound interest is often associated with debt, it can also be a valuable tool for building wealth when investments generate returns that compound over time.
He provides a simple example to illustrate how compound interest works, starting with an initial investment of $100 and showing how a 10% return can lead to exponential gains over 20, 30, or 40 years. Task contrasts this positive scenario with a common example of compounding interest on debt, such as credit card payments, where individuals end up paying substantial amounts in interest over time due to the compounding effect.
Task warns against falling into debt traps where compound interest works against individuals, particularly in scenarios like mortgages and car loans where the total amount paid over the loan term can far exceed the initial principal. He cautions viewers to be mindful of high-interest rates on loans and to avoid making purchasing decisions solely based on monthly payments without considering the total cost over time.
Furthermore, Task highlights the importance of staying out of debt, investing wisely, and seeking returns that can work in one's favor to leverage compound interest for wealth creation. He mentions that cryptocurrencies offer opportunities for investment returns that can benefit individuals by allowing them to work compound interest in their favor.
In conclusion, Task encourages viewers to educate themselves on compound interest, understand its implications, and make financial decisions that utilize its power to build wealth rather than accumulate debt. He stresses the significance of being proactive in managing finances to prevent compound interest from working against individuals and to maximize its benefits for long-term financial growth and stability.