Your financial life could be divided into three basic financial phases:
- Phase 1 (childhood and studying): you acquire the skills to generate an income.
- Phase 2 (working): you generate an income, live below that income and save.
- Phase 3 (retirement): you live on whatever you saved during phase 2.
Once you get to retirement what you have available is essentially what you did not spend while you were working. In essence, saving is simply deferred spending.
One of the most important concepts to understand during phase 2 of your life is the mathematical magic of compound interest. This is one of the most powerful wealth creation tools available to you.
Imagine that you saved R1 000 per year over a 40 year period and your money grew by 10% per year. You invest your R1 000 at the beginning of year 1. Your money will earn R100 during the course of that year. The balance at the end of the year will be R1 100. At the beginning of the next year you add another R1 000 to the investment. Your investment starts off with R2 100 at the beginning of year 2.
During year 2 your money will earn 10% interest on the original R1 000 you invested at the beginning of year 1, the R1 000 you invested at the beginning of year 2, as well as the R100 interest your money earned during year 1.
In year two your money will start to earn ‘compound interest’ which is interest on interest you earned in previous years. The interest for year 2 will be R210. The balance at the end of year 2 will be R2 310.
In year 5 you will earn interest on the R1 000 you invested in each year up till then, as well as on the interest that you earned in years 1, 2, 3 and 4.
In year 8 you will earn more in interest than you are saving. You will still save R1 000 that year but your money will earn R1 144 in interest. From that point onwards your money will be working harder than you.
Multiplying your money
After 12 years the interest will be twice as much as you are saving. In year 15 the interest is 3 times as much as you are saving. By year 40 you will have invested a total of R40 000 out of your own pocket, but the interest that your money will earn in that year will be R44 000.
By that stage your money will earn more interest in one year than you have invested over 40. That demonstrates the power of compound interest.
Table: Investing R1 000 per year, earning 10% per year
The illustration above uses R1 000 per year in order to explain the concept simply. In reality the amount you should be investing is 10% – 15% of your gross income into investments. If you did this over a 30 to 40 year period your portfolio could be generating more in interest than you are earning from your job.
Compound interest is arguably the most reliable way to achieve financial independence, which is where you can support your lifestyle from your capital and no longer need to work.
The key is to start soon enough and not to stop. If you have broken service do not cash the investment in and spend the money. If you spend it you reset the clock and you go back to year one. Rather reinvest the money from your pension or provident fund whenever you move from one employer to another. Start early, maintain the continuity and harness the mathematical magic of compound interest.
(Infographic) The 10 Things You Should Cover In Every Investment Pitch
If you want to wow potential investors, you need to cover your bases.
If you’ve ever watched Entrepreneur’s original series, Elevator Pitch, then you’ve probably seen smart founders make dumb mistakes while pitching their ideas to potential investors. They might flub an answer or get tongue-tied, or they might just be a little boring. Other times, you might notice that something seemed off about a pitch, but you can’t quite put your finger on why.
Investors are gambling every time they put money into a new project or idea. Your job when pitching is to prove to them that you’re worth the risk. That means you’ll need to not only show them the possible upside of what they have to gain, but also be clear about what they could possibly expect to lose and their odds. In other words, you need to give them a holistic view of what you do, not just the one good idea.
You might have pitched an investor yourself and thought you crushed it, only to hear that the investor isn’t interested. If that’s the case, there’s a chance the pitch was missing one of 10 essential elements.
This infographic by Buffalo 7 breaks down 10 slides you should have in your next investment pitch deck. If you’re not presenting formally, though, you can still keep track of these aspects in your head and make sure you cover each one. They include:
- The vision, where you concisely explain your idea.
- The problem. Why is your vision necessary or helpful?
- The opportunity. What is the market size, and how can you position yourself to earn a share of it?
This is just the start, though. Check out the infographic below to see the rest of the slides you need when pitching investors.
This article was originally posted here on Entrepreneur.com.
‘Shark Tank’ Investors Reveal Top 5 Tips To Make Your Business Famous
Is your business worthy of fame? If so, pay attention to what the Sharks have to say …
Shark Tank enters its tenth season as popular as ever. Over the past decade, millions of people have watched fascinated as entrepreneurs pitched their business ideas and startups in the hopes of winning an investment and support from self-made millionaires and billionaires.
The multi-Emmy® Award-winning reality-based show has had a tremendous impact on the business world and has been a major influence on the increased popularity of becoming an entrepreneur. Over the years, the show has evolved into one of the world’s top platforms to launch a business and recently reached an astonishing $100 million in deals offered in the Tank.
I was recently invited to attend a private event hosted on the set of Shark Tank to celebrate their 10th season and met with all the Sharks and most of the guest Sharks for the current season. This year’s guest list includes luminaries:
- Charles Barkley, Hall of Fame NBA star and TV analyst
- Alex Rodriguez, legendary baseball player and businessman
- Rohan Oza, an iconic brand builder and marketing expert
- Sara Blakely, founder and owner of SPANX brand
- Matt Higgins, the co-founder and CEO of RSE Ventures and vice chairman of the Miami Dolphins
- Bethenny Frankel, TV celebrity, author, and founder of Skinnygirl brand
- Jamie Siminoff, the CEO of RING, who rejected an investment offer in season 5, but went on to sell his company to Amazon for a whopping $1 billion.
My better half was also invited, and we arrived promptly on time at Studio 24 inside of Sony Pictures Studios in Culver City, CA. We were greeted by the cordial staff who informed us that the Sharks were still filming the last takes of the day. After several minutes, we were invited to chat with the Sharks on the main floor where nervous entrepreneurs excitedly pitch their companies to the investors under the bright lights of the studio set.
I was curious to know what excited the Sharks the most about their tenth season and what they believed to be the best advice for an entrepreneur to help make their business famous.
1. Create an ingenious product
When asked, Lori Greiner said, “It’s a mix, right? Of smart marketing and ingenious product. For example, Scrub Daddy was a technology. So, taking that one sponge, which was revolutionary, changed the whole sponge arena. We now have, to date, 20 different SKUs, and we have 30,000 new retail locations and 170 million in sales. That’s what takes it from one idea to a global brand.”
Of course, skillfully promoting your product on a platform like QVC is another excellent way to make your business famous. The day after the Scrub Daddy episode aired, Greiner helped CEO Aaron Krause sell their entire inventory of 42,000 sponges in less than seven minutes on QVC.
2. Leverage social media marketing
During my chat with Bethenny Frankel, she stressed, “Social networking is so important. Also being a little bit disruptive now … and you have to be creative. You have to be creative. The President was the most disruptive candidate that there’s probably ever been in history. He got people’s attention, and young entrepreneurs need to get people’s attention in some way. So be a little disruptive.”
Matt Higgins responded, “I’d say that you have to understand social and digital marketing. You can’t survive unless you understand Instagram, Snapchat or all the tools out there. You have to be contemporary.”
Barbara Corcoran claimed, “Every one of us successful entrepreneurs, for the last two years, were phenomenal at social media. It’s true. No exceptions.”
No smart entrepreneur will deny the power of social media when it comes to making your company famous. With more than 2 billion people worldwide using some form of social media, any business can put their business in front of a large audience, especially if they can create content that goes viral.
3. Build a community
Daymond John stressed the value of building a community. “You’ve got to build a community,” stated John. “Nobody needs to buy anything new in this world. They only buy it because there’s some form of community and/or need that you are supplying for them.”
John speaks from experience. He built a successful clothing empire by creating a vast community of his own via his clothing brand FUBU. John wisely invested in celebrity endorsements, making him an early pioneer of modern influencer marketing.
If you lack the resources to build your own community from scratch, you can leverage the power of others. Partnering with influencers who have cultivated their own communities allows you to introduce your product or service to larger audiences. In fact, some consider Shark Tank to be the world’s largest business influencer platform.
4. Devise a publicity hook to win earned media coverage
Barbara Corcoran also said, “I’d say you need a publicity hook. Some hook, angle or gimmick that grabs the attention unfairly from your competitors.”
Remember, Shark Tank is a unique combination of reality television, business acumen, and entertainment. Doing something unique, different, or disruptive can get you significant media attention and abundant free publicity… especially if you’re able to leverage that publicity and captivate the show’s producers, who decide your fate as to whether you’ll appear on the show.
Regardless if you want to appear on Shark Tank or not, being featured in the media is a way to differentiate your business from the competition and reach a broader audience. Be creative and willing to take educated risks when it comes to getting noticed by the media. You should always be actively building relationships with media representatives and ask for their insights when formulating your plan.
5. Know your strengths and stay focused
When I asked for billionaire Mark Cuban’s insights, he thoughtfully replied, “Knowing your unique advantages, play to that, and your strengths. And focus. You know, what happens is very often people start with an idea, get a little bit of traction, then it gets hard. And when it gets hard, they start looking for other things to do as opposed to playing to their strengths. Because businesses aren’t supposed to be easy. You know, if they were easy everybody would already be rich, and we’d all be sitting on a beach somewhere. And so, when it gets tough, you gotta dig in and work hard. I’d say the final thing I’d add is that sales cures all. There’s never been a business that succeeded without sales. So, if you focus on selling … if you’re able to sell … and that’s something that is one of your core competencies, then you’ll be okay.”
These are wise words from one of the world’s few billionaires.
This article was originally posted here on Entrepreneur.com.
The Best Way To Get Your Teenager To Start Investing Right Now
Jeff Rose advises a young fan on where to start his investment journey.
In this video, Entrepreneur Network partner Jeff Rose talks about receiving a letter from a young investor, who is looking for advice on how to begin investing.
Rose talks about the act of actually doing the investing versus worrying about reading books or asking others about the process. Taking action gets the most results, since you are able to make mistakes and start the learning process. Taking action also leads to more experience, which is to say if you begin investing as a teen, you will be much more savvy about investing as a twenty-something.
In answering this young investor’s concern about investment direction – the fan hopes to balance short-term gain and long-term gain, as well as to establish some padding for a future business – Rose turns him in one specific direction: A Roth IRA. When he was younger, Rose didn’t even know what a stock was until far into his college years; during this time, he discovered the Roth IRA and learned of its compounding power, as well as the accessibility of an initial investment.
As another route, Rose also mentions starting a business. This path, Rose explains, will help you achieve the most return on investment.
Click on the video to hear more tips for a younger investor.
This article was originally posted here on Entrepreneur.com.