The Quickest Way To Grow Your Money

On my journey to improving the health of my finances, the one thing I was always looking for the most was how I could increase my income. I’d been spending a lot of time already investing a percentage of my income in shares and enjoyed watching my money grow. But I wanted to invest more. I’d worked out that If I invested just a few hundred pounds a month more, then the power of compounding interest would let me retire 5 years earlier than I originally planned.

For the uninitiated like me, the power of compounding interest is really something you should know about. It’s what can make the difference between your retirement being comfortable or VERY comfortable. So imagine you have £10,000 in a “Vanguard S&P 500 ETF”. For argument's sake, say this grows 9% this year. So now you have £10,900. Plus you also receive £500 dividends. So the year ending you now have £11,400. So we assume the next year your investments grow another 9%. But now it’s 9% of £11,400 and not the original £10,000. So now you have £12,462. Then you also get your dividends which is now £600. So year-end you now have £13,026. To cut all this short and to show the where this is going and what the power of compounding interest looks like. If you saved £500 a month for 20 years in an ETF that tracks the US stock market (which historically grows on average 9% a year) you’d have £321,728.06. Of that amount, you would have only contributed £120,000. The rest (£201,728.06) is the interest gained. Take it a step further and say you saved £500 A month for 30 years, your total amount would be £857,190.32. Of that amount, your contributions would only have been £180,000. The other £677,19.32 would be the compounding interest. So this should be painting a pretty powerful picture.

The reason I’m saying all this is because I want to show you that sometimes the best way to increase your money isn't always to get a second job, a side hustle or argue with your boss for a payrise (although I wouldn't discourage you from doing that either). Sometimes the most efficient way to grow your wealth is to use what you have. I’ll say again what I’ve said in my other articles. The rich don't save money, they invest it. They make it grow. Of all the books I've read by the rich, I’ve taken away one thing and that is, don't work for money, make your money work for you.

Of course the above is just an example using an online interest calculator but the point is it shows the power of compounding interest. I always encourage people to do their own research. The above examples won't take tax and fees into account for instance.

The next part is another interesting lesson I’ve taken from reading and attending seminars (don’t scoff, some of them are actually very good). Is that the second-best way to increase your money isn't to do the aforementioned second job, side hustle or pay rise. It’s to lower your outgoings. As obvious as this sounds it genuinely is the best way to see a bit extra in your bank account at the end of the month. If you simply ask yourself, “do I really need the £9.99 a month Spotify account, the 4K Netflix subscription, and the HD Sky Sports package”? Have you checked your car insurance and home insurance on an insurance comparison website? Once you do that then please, for all that's holy make sure you pay off your credit card debt. I know people who try to “hustle” an extra few hundred pounds a month through eBay to help pay bills but pay £120 a month in credit card interest. If you have credit card debt (or any debt) then tighten up and get that debt paid off before you do anything. Debt will eat you alive. Even if you have to eat jam sandwiches for dinner for the next 6 months. It’ll be a huge weight off your shoulders and it’ll enable you to start moving forward with your financial goals.

If you do the above then it’s not out of the realms of possibility that you could save £150, £200 maybe £300 a month or more. That's more money than most people would be able to wrangle out of a hard-fought pay rise or a time-draining side hustle.

Money isn't the only thing that compounds folks. Effort does too. Keep making small changes every day and all that compounds over time into great success. I've personally seen it happen.