How to build a money-making machine

Do you find yourself wondering how you’ll make enough money to achieve your financial goals? Are you dreaming of retirement but can’t imagine how you’ll find the money to do so? Is traveling or another large goal at the forefront of your mind?

Don’t be discouraged if you’re unsure of how you’ll achieve these goals – you don’t have to win the lottery. You don’t have to spend your life as a business operator instead of a true owner. You can absolutely become financially independent in your life without ever having to make a fortune in annual income. You just need a money-making machine.

It starts by giving up the illusion that you have to hit a home run or make a giant score and instead deciding right now to adopt an entrepreneurial mindset. The idea is to make your money work for you – so you don’t have to. There are many high-income skills you can learn to make yourself more money, but some of the best money-making machines don’t rely on special skills or knowledge; they rely on the concept of compounding.

The power of compounding

Compound interest is interest that you earn on both your principal savings and the interest you’ve accumulated on those savings so far. Every time you earn interest, it’s reinvested back into your account along with your initial principal. The power of compound interest means that you then earn interest on the total amount, or “interest on interest.” This makes your investment grow more quickly, and you don’t have to do a thing. It gives you an insurmountable edge by allowing you to continue building your net worth for life.

Here’s an example from Burton Malkiel, author of the classic finance book A Random Walk Down Wall Street. Imagine two brothers, William and James. William invests $4,000 annually starting at age 20 – and at age 40, he stops. His brother James invests $4,000 annually starting at age 40 – and at age 65, he stops. Which brother has more money in his account at the age of retirement?