The Power of Compounding: How to Make Your Money Work for You?

Are you ready for some financial magic? I might just have the answer to some financial magic on the show today. I got this question from a listener. I thought, this is great, Ralph.I keep hearing about compound interest. People say it's powerful, but I really don't understand how it works. Is it really that big of a deal?And I thought, yes, it really is that big of a deal. This is a huge thing. And honestly, it's almost like magic.Because truth is, compounding is the closest thing to financial magic you're ever going to see. What it really is, and we're going to get into it in the details here in just a bit.It's your money earning money on your own money and those money start earning money too. And it can turn those small things into big results. Money for money. That's what we're going to talk about on today's show.This is Financially Confident Christian, your daily dose of gospel, grounded insight and faith driven tips to help you break the cycle of financial shame with confidence. Hello there and welcome. My name is Ralph. Thank you again for joining me on Financially Confident Christian.My passion every day is to help you become a more financially confident Christian and to finally break that cycle of so many of us feel that cycle of financial shame and help you replace that fear with confidence. And I've been doing this for 30 years. One of the things that I have used as a quote, we'll call it a magic trick, if you will, is compounding.And I've seen compounding turn just small things. We're going to talk about some real numbers here in just a few minutes, turn small, consistent investments into significant wealth for people.As an example, my son, my oldest son, he said to me one day, he said, dad, I looked the other day and his wife's name is Hunter and his name is Ryan.So Ryan and Hunter, he said to me, he said, dad, I looked the other day and if we put a hundred dollars a month into an investment portfolio because of compounding debt, I'm going to have a ton of money when I go to retire. And he is absolutely right. But the other side of this and this thing we're going to kind of dwell on a little bit today is the missed opportunity.If you wait too long, you don't get the benefit of that compound and those missed years can have a huge difference. And I think you need to also understand is it works both ways. Compounding can help you on the saving side, but it hurts you on the borrowing side.So let's get right into it. I had this client, this guy said to me, come in to meet with me one time, said, Ralph, I really want to start investing.And I said, that's a great idea. And he says, but I've always heard I got to have tons of money. And I talked about that the other day on the show.You definitely don't need tons of money. So if you're listening right now, you're like, Ralph, I get it. I don't have a ton of money. Neither did I at the time.This client came in, sat down with me, and he says, what I can do is I can put $100 a month away.Now, this client was 22 years old at the time, and by the time they retired, they had more than someone who was 40 years old, had started at 40 years old and contributed twice as much. See, that's the magic part. I love what Albert Einstein said. He's often credited with calling compound interest. And I thought this was great.He called it the eighth wonder of the world, because he gets it. He understands. And this is what his quote said. It said, hugh understands. And I was talking about compounding interest at the time.He who understand it, earns it. He who doesn't, pays it. And see, that's the key to this. He saw both sides of this transaction. Because compounding helps you on the same side.Yes, it takes small investments and over time, makes them grow. Well, guess what? Here's the problem. It also makes those debts grow over time as well.So let's get into some key points, and then we'll dig a little deeper here in a minute. But compounding at a very basic system is just your money earning money on itself. And then when those things start, that money earns as well.It's what we call the multiplier. And time matters more than any amount in this. That's the thing I want you to really understand today. It's not about the amount, it's about the time.So the earlier you start, truthfully, the better it will be later, because time, again, matters more than money.One of the things I really like about this, though, it allows somebody like you, who doesn't have a ton of money to invest, to make small, consistent investments over time. Think about it like this. The turtle and the hare probably remember this as a child, that idea of that race between the tortoise and the hare.And you, when you're looking at this, you're like, oh, the hair is bigger, it's stronger, it's faster. But what do we always find out? The tortoise wins. Why Consistency. And that's what we're talking about here.The problem with this, though, and I alluded to this a few minutes ago, if you don't start it at the beginning, that waiting is going to cost you. And every year that you delay or every month that you delay investing, that's killing your potential growth.But like I said, you also have to understand this works both ways. So it's great from the investing side, but if you've got that credit card, credit cards have compound interest as well.And if you're only making that minimum payment, I've done shows on that. Just a couple weeks ago, I did a show about that. If you're only making that minimum payment, that stuff can truly bury you.And I've seen this kill so many people's finances over the years, and it just buries you a little bit at a time. Let's get a little deeper into this because I really want you to really get into the understanding of what compounding is.Because when you understand this, it truly is magic. It's very definition when interest or growth applies not only on your original money.That's what we're talking about, not just on the money you put into it, but also on the previous growth. So you put $10 in that $10 gross to 11. Well, guess what, with compounding, now, that interest is calculated on 11, not on the original 10.So that becomes a multiplier. And that's why time makes such a huge difference here. The more time you have, the more multiplication you'll see because even small amounts.I'm going to give you some actual numbers here in a few minutes. Even small numbers will grow larger decades and decades and decades after you put that money in. So the key is here, big takeaway for today.The earlier you start, the more dramatic the effort is going to be. And it's a huge effect. And like we talked about, picture that tortoise, picture that turtle. It's all about consistency. And that beats timing.It really does. And it beats the amount. Honestly, if regular investing matters more than predicting some future moment, you got to beat this idea of perfection.So many people think, well, I've got to find the perfect time so that I can invest. But that's the whole point of this kind of compounding thing. Now, again, let's take a minute and let's talk about the other side of that.Because so many people find themselves in this debt trap because compound interest works the same way on the debt side. And that interest just continues to dig a hole deeper and deeper and Deeper.So my big charge for you right now, you don't need thousands of dollars to start with. Let me give you some simple numbers here. I ran this calculation. Me. Look down in my notes here for a second.I ran this calculation, and if you put $25 a month starting at age 25. Use 25 and 25 to make it simple. $25 a month. At age 25, let's assume 8% return on your investment, which isn't a bad return. And again, this is.You don't need thousands to start 25 bucks. I think we can find 25. I bet you can find 25 today. 25amonth starting at age 25. By the time you turn 65, you will have $87,275.That's how much that will be worth. You're thinking, Ralph. Well, at $25 a month, yes. Here's the most brilliant part of this. Your original investment's only $12,000.If you take $25 times 12 months, times 40 years, in this case, $12,000 is your original investment. But. But that has now grown to $87,275. What's the earnings on that? I'll do the math for you. It's $75,275 at $25 a month. And see, that's huge.And that's why I thought it was so important to bring that message to you today, compounding for the consistent person when you start early. So I always tell people as they're listening to the show, start early, start investing early, start. Because you can see the return just at $25.Imagine if that was a hundred dollars. Imagine that. Let's tie this into Scripture. I actually found two verses today. First one's from Proverbs, chapter 13, verse 11.And I use this one because this is all about that consistency piece. Again, this is Proverbs 13:11. Dishonest money dwindles away. But whoever gathers money, little by little, makes it grow.And see, that's what Scripture is pointing to here. Scripture is pointing to that consistency, that compounding, it's rewarding. It's steady.And from a biblical perspective, it's all about that faithful diligence. And here's the other verse I found. I thought this one was a great one as well. This is from the book of Galatians, chapter 6, verse 9.And again, this is all about consistency. And stay in that course, starting early. Galatians 6, 9.Let us not become weary in doing good, for at the proper time we will reap a harvest if we do not give up. Think about that $25 investment, $25 a month, that consistency, not giving up. And what are we talking about here? It's that faithfulness over time.And it's that faithfulness of just that consistency of putting that money into that investment portfolio.And I thought, you know what, this applies in life and our finances, when we're consistent when we do those things day in and day out to be a better person, to be that Christian person we want to be. So that's my real key for today, consistency and take advantage of some compounding magic. Why about we pray together now?Father, we just come to you today and we are just so thankful for this beautiful thing of compounding. We just thank you for the provision you give us in our lives every day.And we just ask that if we haven't started investing that you would give us the discipline to start that even if it feels small. We feel so minute in some of these things.But Lord, help us to find that 10 or $25 a month to start that investment and to be diligent in that, as the scripture says, to gather it little by little, Lord, and let it grow. And we ask you to give us patience. And not a lot of people say, Ralph, don't pray about patience.But Lord, we ask for your patience in this, to not have that focus on that get rich quick scheme overnight. So many people, we see that around us. But how help us to be patient in that, Lord?Help us to reap a harvest of this consistency and this faithfulness. At the same time, help us to have wisdom, to get out of debt where we found ourselves in order to stay out of debt.Help us to realize that that will compound against us and help us to really focus our efforts not on so much on what's in our investments, but what's in you, Lord. And help us to really find our value. And we ask all these things in the name of Jesus. Amen. Discipline over time. Just get started.Even if it starts small, have that patience, let time do its work and avoid that temptation of getting into debt. So here's my one action item for today. Go find a $25 and make that investment and do it every month.And you will absolutely be amazed at just how much that can grow over your lifetime. And I just want to thank you for joining me today. One of the things I'd love to do for you is I just finished writing my third book.My third book is called How to Become a Financially Confident Christian As I wrote this book, I'm thinking there are people out there, you might be one of these people right now listening, who just needs a set of tools and a set of people that have been through this before. And I took 30 years of my experience here doing accounting and working with people, and I put that into this book.It's really a labor of love and a passion. I want to give you a copy of that book for free. You can get that book by going to my website. That's FinanciallyConfidentChristian.com/becoming.Go right to that website again, that's FinanciallyConfidentChristian.com/becoming. Then you can download a copy of the book right then and there, no questions asked. I would love to give it to you now.I really hope today has been impactful for you. Let's all work together to become those financially confident Christians because I know you can do this.Have some confidence in yourself, because most than me having a confidence in you, the Lord has confidence in you. So stay financially savvy out there. God bless you. And you have a great day today.