Play asymmetrical rewards:1 to 5. Risk 1$ to gain 5$ (and not 1$ to gain 20%).

What you will get from this article:

Understand the compound interest definition
Discover what can happen with $1 when compound interest is maximized
Learn how you can put compound interest to work for you – starting now
Find out how to access the ultimate financial resource, Unshakeable by Tony Robbins

What is compound interest, and why bother with it? Even though it might appear that investing $1 right now is silly, even that small compound interest investment is powerful and suddenly that $1 is worth a whole lot more.

It might seem easier to make a larger, riskier decision right off the bat, but in truth, compound interest is perhaps the most powerful tool in your investment arsenal. Albert Einstein once called it the most important invention in all of human history. So why do so few of us take advantage? Most people simply don’t take the time to fully understand the concept.

But you’re not one of those people. You want to fully understand the definition of compound interest and how it works so that you can mindfully save. Here’s how a compound interest investment puts time on your side and leads to you to financial freedom, one dollar at a time.

Discover more investment tips from the smartest minds in finance! Compound interest definition

What is compound interest? Let’s start with a dictionary compound interest definition to establish a core meaning of the term:

Compound Interest: A method used to calculate interest paid on both the principal and on accrued interest.

In other words, compound interest is interest on interest. It occurs when you reinvest interest rather than take it as a payout. This means that interest in the next period is earned not only on the principal sum, but also on any interest that was previously accumulated. The amount you earn is based on how much money you have invested, the percentage of interest that is paid on that amount and on the compounding frequency or number of times per year interest is paid out. Compounding frequency could be yearly, half-yearly, quarterly, monthly, weekly, daily or continuously. The more frequently interest is compounded, the more interest you will earn.

Let’s take an example with numbers to more fully understand the definition of compound interest. If you had $100 and an annual compound interest rate of 3%, at the end of year one you’ll have $103. For year two, you earn interest on all $103, meaning you’ll earn $3.09 in interest that year instead of an even $3.00. For year three you’ll earn interest on $106.09, and so on. After 20 years you’d have $100 * (1+.03)20, so $180.61 total.

Even small amounts of money make a difference. Just see what can happen to $0.10 if you doubled it 19 times:

As you can see in the video, with each round you play, the number gets remarkably bigger:

Tony’s golf analogy shows that compound interest can make a huge difference in your investments, whether in savings, bonds or stocks.

Power of compounding illustrated

Simple interest vs. compound interest

Simple interest is interest that is only earned on the principal. For example, if you had $100 and a simple interest rate of 3%, you’d earn $3 each year. Your interest earnings would never change because the principal stays the same – so you’d earn $3 in year one, $3 in year two, etc. After 20 years you’d have $100 + ($3*20), so $160 total.

Per our example above, compound interest gives $20 more than simple interest over the same time period. And while that may not seem like much, it can really add up over time.

Another essential piece of the puzzle is to know the difference between APR and APY. APR stands for annual percentage rate and is an annual rate of interest that doesn’t take compounding into account. APY stands for annual percentage yield. This is a percentage rate that reflects the total amount of interest paid on the account. It’s based on the interest rate compounded daily for a 365-day period. You’ll see this rate mentioned on some types of compound interest investments. The compound interest formula

To really go in-depth about the compound interest definition, let’s take a look at the formula. It may look complicated at first, but it’s actually relatively simple. The formula is A = P (1 + r/n) (nt). To calculate, enter the principal amount (money you’ve initially invested) into the P section, interest rate with r as the decimal, n as the number of times the interest is compounded and (nt) as the time the money is invested for.

For example, if you invested $5,000 into an account with an annual interest rate of 5% that is compounded monthly, it would look like this: A = 5000 (1 + 0.05/12) (12 (10)), which equals 8235.05. This means that your financial investment of $5,000 is now worth over $8,000 in 10 years’ time. What is compound interest? Examples with numbers

Do you want to use the power of compound interest to become financially unshakeable? Here are some compound interest examples that better illustrate the answer to the question, “What does compound interest mean?”

1. You make an initial investment of $10,000 for a period of five years and that investment earns the return of 3%, which is compounded monthly. At the end of the five-year term, your initial $10,000 investment has grown to $11,616.17.

simple interest

compound interest

1. You make an initial investment of $10,000 for a period of two years and that investment earns a return of 2%, which is compounded quarterly. At the end of the short 2-year term, your initial investment has grown to $10,404.07

2. You make an initial investment of $1,000 for a year and that investment earns a return of 5%, which is compounded twice a year. At the end of the year, your $1,000 investment has grown to $1,050.63.

annual percentage yield

Another compelling example comes from financial expert Burton Malkiel, who created the idea of index funds. His story of two brothers investing is another great example of how to make a money machine.

Take two brothers, we’ll call them William and James. Both are 65 years old. Based on the information below, which brother has more money in his account at the age of retirement when they compare their returns? William, who invested for 20 years, or James, who invested for 25? Click below to find out.

Yes, William earned a whopping 600% more than his brother even though he invested the exact same amount for less time. This illustration makes it clear to see why compound interest is part of the language of the wealthy. Even if you’re no longer in your 20s, you can still take advantage of compound interest by putting away what you can now. Every day you wait, you’re losing out on extra income. How to make compound interest work for you

Clearly, it pays to invest as early as possible to maximize your earnings. So why not start now? Perhaps you want to take that big bonus or raise and take a vacation or buy a new car. Or maybe the reason you’re not saving now is you’re already squeezing the most out of every paycheck.

It’s time to throw out the excuses, because you can invest just $1 or $10 a week to make compound interest work for you.

What would happen if you started with $1 and contributed $1 every week to a savings account with an APY of 0.25%? In 10 years, you’ll have $527. In 20 years, you’ll have $1,067.

If you started with $1 and contributed $10 every week to a savings account with an APY of 0.25%, how much would you have in 10 years? A few hundred maybe?

You’d actually have $5,266.60. In 20 years, it would be $10,665.

The very definition of compound interest is that the more you continue to add to your savings, the more money you have to earn interest. Basically, the more you put into your investment, the faster it grows. This is hands-down the best way to achieve one of Tony’s financial resolutions of speeding up savings.

Compound interest is found in many types of investments. Unfortunately, U.S. savings accounts now generally have extremely low APYs; most of them have been below 1% since the Great Recession. However, as our example shows, even a few tenths of a percentage point plus regular savings contributions can make a huge difference due to how compound interest works.

The best way to put compound interest to work for you is through other investment types, like a Roth IRA, SEP IRA, 401(k) or even a Coverdell ESA, an education savings account that can help you pay for your children’s education. With these compound interest investments, there is no threat of loss and a guaranteed rate of return.

Curious to learn more about smart investing and gaining your financial freedom? Check out how to plan your financial future and smart ways to plan for retirement. Harness the power of compound interest and see just where $1 can take you

In many ways, owning a business is a metaphor for life; it’s a balancing act that requires resilience and skill in order to stay afloat. If you’ve been in business for long enough, however, it’s likely you’re beginning to wonder if making a profit is a worthy–enough goal. Rather than subsistence, you’re likely craving abundance and the sense of security it provides.

You might realize that building wealth is key to creating prosperity. But many people struggle with how to build wealth due to misconceptions about the nature and process of wealth-building. The good news is that with the right mindset and effective strategies in place, you can work your way up the levels of wealth, elevating your business – and your life.

Start building wealth through your business ventures today The five levels of wealth

Building wealth on a large scale is a massive goal – and if it doesn’t feel impossible, you’re not dreaming big enough. To bring your vision to life, take those big dreams and break them down into smaller, achievable goals using the five levels of wealth.  Financial stability

means you are not only able to pay your monthly bills, but also have an emergency fund of at least three months of basic living expenses. You are saving more than you spend and working to become debt-free. Financial strategy

Is when you begin to think about investments. Yes – it’s time to start investing this early in the process. The earlier you begin leveraging the power of compounding, the more money you will have in the long-term. Financial security

Is all about confidence. You have enough saved and invested that if you lose your job or an economic winter occurs, you can get through it and come out on the other side just as financially secure. Financial freedom

It means you are able to not only survive hard times, but to do what you want, when you want, no matter what. Your money machine is humming along nicely. This is when you can buy that nice car or expensive vacation – and not before. Financial abundance

Is the ultimate dream. You have so much money, you can give it away. Giving back is exactly what you must do. Money itself isn’t wealth. It’s a tool you can use to find true fulfillment in other ways.

It may take a lifetime to reach financial abundance, but it can be done. Remember what Tony says: “There is a powerful driving force inside every human being that, once unleashed, can make any vision, dream or desire a reality.” Find your driving force and use it.

Whether you’ve just started the process of building wealth or you’ve reached financial freedom, you can benefit from strategies that help you adjust your mindset and not only create wealth, but keep it.

1. Understand that building wealth is about more than just money

The first step in understanding how to build wealth is realizing that abundance is about far more than just money. Tony makes a distinction between monetary wealth and true wealth. While the former secures your purchasing power, only the latter can secure genuine, lasting happiness. Money is merely a vehicle to carry you to financial freedom. Then, with financial freedom in place, you become able to pursue your dreams and find lasting fulfillment.

When you view wealth as a way to live an extraordinary life, you can eliminate any limiting beliefs about money that are subconsciously sabotaging your wealth-building strategies. Keeping this distinction between money and true wealth in mind will prepare you for the second step in building wealth: focusing on finances as they relate to your values. 2. Align your approach to building wealth with your purpose

The second step in building wealth is cementing an unshakeable mindset that recognizes your finances as a tool for pursuing what matters most to you. By building your deepest values into your approach to creating wealth, you align your financial decisions with your passions. To discover your deepest values, ask yourself: What do I want most out of life? What is missing in my life? What are my biggest fears? What do I feel is impossible? What do I want for the people I love?

Once you get in touch with your value system, you can align your spending priorities accordingly and get on the right path to building wealth, which includes building high-income skills. Incorporate these priorities into a feasible budget for living below your means and track your spending to hold yourself accountable. Once you’ve developed a baseline of financial freedom, you must “put your wealth to work” by investing it wisely.

3. Don’t trade time for money

The biggest difference between time and money is that you can always make more money – but you cannot create more time. When focusing on building wealth, too many people make the mistake of thinking that working more is the key to earning more. Unfortunately, when money is tied to work you must perform, you never really get to enjoy the wealth you build, which can lead to getting overly stressed.

Instead of trading time for money, focus on developing wealth-building strategies that involve passive income. Passive income comes from starting a business or creating a team that earns you money even when you’re not working. It can also be the product of smart investing.

4. Focus on investing

While developing a budget, saving money and making a good income are all important, the best wealth-building strategies involve investing. A smart investment strategy involves diversifying your portfolio, minimizing taxes, finding investments that match your level of risk tolerance and understanding the value of time and real returns.

There is plenty of information out there about investing tips and strategies and those who are smart about building wealth are constantly seeking new ways to educate themselves on the process. Learning how to invest wisely when figuring out how to build wealth is a necessity if you want to take your earnings to the next level.

5. Overcome emotional spending to retain your wealth

A critical component of building wealth that stands the test of time is keeping the wealth you accrue. Like growing wealth, keeping wealth requires making mindful decisions about how you invest and spend your money. Instead of letting emotional (unmindful) spending derail your finances, you must learn to control your emotions.

As you develop emotional mastery, you’ll find that, by becoming aware of how your feelings are influencing your financial choices, you gain the ability to make deliberate spending choices. In turn, as you tap into your inner creativity while sticking to your financial strategy, you’ll become confident in your ability to manage your finances and easily find ways to build wealth. The resultant cycle creates upward momentum – in learning how to build wealth effectively, you increase your self-efficacy, which in turn allows you to build more wealth.

6. Work on personal growth

Tony Robbins’ philosophy on financial freedom centers on self-discovery and personal growth as the cornerstones for building wealth. Personal growth is so pivotal to responsible money management that research has investigated the relationship. A study of more than 600 millionaires found that millionaires invest more time in personal-growth activities like reading and exercising than do non-millionaires.

Millionaires also manage time wisely, likely recognizing time as a limited resource that must be utilized strategically if they want to achieve their goals of building wealth. The study concluded that, with millionaires as the ultimate example of how to build wealth, a person’s ability to develop prosperity hinges on their ability to engage in self-discovery.

Self-discovery starts with examining your beliefs about money and wealth and identifying what is holding you back or contributing to bad financial habits. You can then go on to explore any gaps in your knowledge or education that are limiting you on your path to building wealth. Do you need to learn more about how to invest wisely? Do you require an advanced degree or additional training to excel at your job and fund your wealth-building strategies? From there, identify where you can improve and create a personal growth plan to work on those areas. Enlist experts such as a financial planner or business coach to help you overcome obstacles along the way.

7. Cultivate positive habits

Learning how to build wealth doesn’t need to be complicated. Instead, discovering your true self is really just a matter of bringing awareness to your actions, behaviors and underlying beliefs. Take, for example, actor Russell Brand who famously overcame addictive behavior by cultivating discipline and awareness into his life.

In learning to recognize negative patterns, you too can take the first step in breaking free from unhelpful behaviors that are holding you back from building wealth in your life. To jump-start your own process of self-discovery, incorporate mindfulness meditation into your daily routine. Tony Robbins completes a 10-minute priming exercise every morning to channel his energy and focus for the day. By bringing your body and mind into alignment via focusing your breath and attention, you become able to master your emotions and gain deeper insight into what drives you – so you can use that to begin building wealth.

When you understand the connection between building wealth and the life of your dreams, you can identify what’s holding you back and put in place wealth-building strategies that will take your money – and your life – to the next level.

What you will learn from reading this article:

• How to start investing money in stocks, real estate and mutual funds to obtain the greatest financial rewards in the future

• When to start investing – as soon as possible, rather than waiting for the perfect moment

• How to build your money-making machine by automatically putting aside a small portion of your paycheck each month

• How wealth generates over time due to the power of compounding

when to start investing

When is the best time to start investing your money? Right from your first paycheck? When you have a spouse and are looking to start a nest egg? Sometime in the more distant future?

Did you ever learn to invest? Chances are that you’ve been waiting for the “right” moment to start investing, but what makes that moment happen? And even then, can you learn how to start investing money with no prior stock market experience? If you want to discover how and when to start investing, follow these tips.

When is the ideal time to start investing?

The short answer is: Invest today, not tomorrow. Because even if you just start investing a little bit of your savings, that amount will have that much longer to grow, thanks to the power of compounding. When to start investing isn’t a question of your income or your debt – anyone can commit a portion of their paycheck to investing. You may need to cut your spending in other areas, but it is worth it to create an unshakeable financial future.

What is the best amount to start investing?

While when to start investing isn’t up for debate, the amount you invest depends on a few factors. You absolutely do not need a lot of money to start investing. Certain types of passive income – like real estate investment trusts, money market accounts and index funds – are easy to understand, reliable and require less than $500 to get started.

What else do I need to consider before investing?

If you want to start investing beyond a basic retirement account, like stocks or mutual funds, there are a few things to consider.

Cash flow, debt and budget. Are you realistic about your current financial situation? Anyone can invest a percentage of their paycheck in a 401K or IRA. But if you’re wondering, “How do I start investing in stocks?” or thinking about another higher-risk area, make sure you first pay down debt and have a good idea of your own cash flow and budget. Financial literacy. You don’t need an MBA to learn how to start investing money. But you do need to know certain financial terms and have a basic understanding of how things like the stock market work.

risk tolerance in investing

Risk tolerance. When to start investing and the amount you invest depends on your risk tolerance. Those with a high risk tolerance are willing to invest more, while those with low risk tolerance may want to start smaller. If you’re thinking about investing a lot of money, especially in a high-risk area, talk to an expert who can provide guidance. Goal setting. You won’t know if your investments are successful if you’re not tracking them. As with any other area of your life, always set goals. Specific, measurable goals will keep you on track and provide benchmarks that can help you refine your investing strategy.

Get started creating a money machine

You’re already a financial trader. Maybe you don’t see it that way, but if you work for a living, you’re trading your time for money. That’s probably the worst trade you can make. Why? Because there’s always more money, but you can never get more time. How do you stop this cycle? How can you keep time on your side while still making a profit? The answer is to create what we call a money machine – money that will end up giving you an income for life.

Set aside a percentage of your paycheck to pay yourself first. Maybe you set aside 10% or 15%. Maybe 3% or 5%. This number will increase over time as your income grows, but decide what portion of your paycheck you’ll invest in yourself now. This is really how to start investing money in the future you deserve. Remember, this amount is off the top and doesn’t factor in any other spending. Your other expenses, such as housing costs, utility bills and restaurants will come next.

The trick is then to put this money somewhere it will begin to work for you – like real estate. “Under your mattress” doesn’t have very good interest rates. But put this set percentage of your earnings into savings no matter what happens and you’re going to slowly start building your financial future. Even if it seems like you’ve already accounted for every penny, you can start saving right now and start investing.

Automate your savings

The best way to set your money machine in motion is to automate your savings. You’ve probably heard this before – but it’s true. When learning how to start investing money the secret is making saving as easy as possible, which means not seeing that money in the first place. That way, you’re not even tempted to spend it somewhere else. You’ll always spend what you have, and reducing that just a little more will pay off. It doesn’t matter if you’re living paycheck to paycheck or earning six figures – save now and you’ll be able to reap the rewards later. You’ll be building a money machine that makes money when you sleep, when you eat and when you eventually stop working. Here’s how you can start investing and saving automatically:

1. Pick the percentage of your income you’re going to set aside automatically. There’s no right answer here, so trust your instincts. From 3% to 10% to 50%, the amount is entirely up to you. Track how much you earn and spend in a month and see how much you can put aside. Save as much as you can, because that money will grow in the bank.

2. If you’re already enrolled in a retirement account through your job, ask HR to automatically contribute your chosen percentage amount directly into that account. If you’ve already got automatic deductions, you can update them to the amount you’ve chosen.

3. Self-employed, own your own business or working as a contractor? You can start a retirement account with a bank or financial institution. Then just set up an automatic transfer from your checking account.

Say you get a raise or other influx of cash – you can stick that into your money machine directly, spread it among your three asset allocation buckets or increase your ongoing savings percentage to match.

Don’t wait to learn how to start investing money – you’ll never get that time back that could have been spent making money. But remember, not all investments are created equal. Learn more about the power of compounding and how to build a smart financial blueprint to get your future under your control. Diversify your investments

A general rule of thumb is to diversify your investments. When you make multiple investments, you reduce the risk for your total investment in the event of one investment’s poor performance. Diversification serves as a buffer, so it’s fundamental to your broader financial freedom strategy. Since some investments generate greater returns than others, you want to be smart in your choices.

Learning how to diversify your investments helps balance your portfolio, with each type of investment featuring unique benefits and risks. Two of the most common questions about how to start investing money are about stocks and mutual funds. How do I start investing in stocks?

Stocks may seem intimidating, but you don’t need a fortune to get started. According to NASDAQ, you can get started investing in stocks with as little as $1,000. When you’re learning how to start investing money in stocks and bonds, your general rule of thumb is to maximize your returns by minimizing your costs. Your costs of investing can include deposit requirements, account minimum restrictions, commissions and account fees. Secure the lowest costs you can while diversifying as much as possible.

how to start investing money

A mutual fund is another name for an investment company that pools money from many investors. The mutual fund uses the pooled money to invest in various assets (like stocks, bonds and real estate) with any returns added to the pool. When you invest in mutual funds by purchasing shares in the fund, each share represents ownership in part of the fund’s assets. Mutual fund investments are attractive because they offer a single diversified investment package managed by professionals.

1. Source 1:

   https://www.tonyrobbins.com/business/how-to-get-started-in-real-estate/

https://www.tonyrobbins.com/ask-tony/saving/

you allocate to your Security Bucket? You want investment options with low volatility that you can rely on.

a blue box with a white label These include:

Cash/cash equivalents (such as money market funds with checking privileges)
Bonds (such as TIPS, or Treasury Inflation-Protected Securities)
Market-linked CDs
Your home – An asset, but not an investment. This is your sacred sanctuary, so you shouldn’t be “spending” it!
Your pension (if you’re lucky enough to have one)
Guaranteed annuities
Your life insurance policy
Structured notes (One with 100% principal protection, purchased through an Registered Investment Advisor)

These types of investments grow slowly, especially at first, but the power of compounding means asset allocation models that incorporate these investments may reap positive rewards in a secure environment over time. Experts would agree that this is step one, and the most crucial component of worthwhile asset allocation strategies. You can remember this Tony Robbins quote when you envision your Security Bucket: “Most everybody thinks that if I want to get big rewards I need to take huge risks, but if you keep thinking that, you’re going to be broke.” The Risk/Growth Bucket: fast and volatile

Asset allocation examples that focus on the Risk/Growth Bucket are exciting because they can gain some truly amazing returns, but they are usually accompanied by volatility.

All effective business ventures inherently have some level of financial risk. That volatility shouldn’t scare you away, and the Risk/Growth Bucket isn’t just for serial risk-takers. It’s part of a well-rounded asset allocation strategy and often leads to the biggest returns in the end. Remember, the market will always rise and fall. The most successful investors know that you don’t get out when the going gets tough.

The bottom line? Whatever you put in your Risk/Growth Bucket, you have to be prepared to lose or live through volatility (depending on the risk of the investments). Take your time making this tough decision and choose wisely when deciding what percentage of your funds you want to place here.

a green box with a logo

What kind of investments fit into your Risk/Growth Bucket? These seven main asset classes fit the bill of potential high returns… or deep losses:

Equities – Another word for stocks, or ownership shares of individual companies. Owning individual stocks is far riskier than vehicles for owning many of them at once, like mutual funds, index funds and exchange-traded funds (ETFs).
High-yield bonds (aka junk bonds)
Real estate
Commodities (gold, silver, oil, coffee, cotton, etc.)
Currencies
Collectibles
Structured notes (anything without 100% principal protection)

Depending on your personality type, it can be easy to get caught up in the idea of reaping great returns and forget how much you are risking in the process. It’s a balancing act, and proper asset allocation models involve finding the biggest rewards that come with the smallest amount of risk. That’s why proper diversification is key when deciding how to allocate savings. Ultimately, it’s the right mix of the Security and Risk/Growth Buckets that makes for smart, strategic asset allocation. Don’t forget to diversify

Remember, don’t just diversify your savings between your buckets, but also diversify within them as well. As financial master Burton Malkiel shared with Tony, “Diversify across securities, across asset classes, across markets – and across time.” Spreading your money across different investments can decrease your risk and increases your upside returns over time. The Dream Bucket: investing in fun

The third and final bucket in this asset allocation strategy is for you to have fun with. With your Dream Bucket you set aside something for yourself and those you love so that all of you can enjoy life while you’re building your wealth. It’s meant to excite you, put some zest in your life so you want to earn and contribute even more. Sound silly? Think of the items you’re saving for in your Dream Bucket as strategic splurges. They’re a key part of sustainable asset allocation strategies, and also necessary for your own sense of fulfillment and peace of mind.

With this bucket, be creative. What can you not stop dreaming about? What would be a glorious experience you’ll remember forever? What would help you stay connected to your partner or reconnect with yourself? It could be season tickets to your favorite sports team or local theatre. Maybe a new car – one that isn’t so practical. Perhaps you fly a lot and dream of upgrading from Economy to Business Class? Your imagination is the limit. Remember that your dreams are not designed to give you a financial payoff; they are designed to give you a greater quality of life.

a purple box with a logo

Don’t just save for the life you want. Make sure you live it by being realistic with your bucket allocation. If you know that travel is a priority in your life, make it a point to save for one big trip a year. Don’t accumulate the funds and let them sit for a trip 10 years down the road.

There are three ways in which you can fill this bucket:

Jackpots – If you get a bonus or a windfall of some kind, use it to fuel your dream tank.
Your Risk/Growth Bucket gets a positive hit and you score big. In this case, you may want to take some of your earnings and put one-third of these unexpected dividends into each bucket. You’re spreading out your risk, increasing your security and getting to achieve your dreams. Not bad!
Save a set percentage of your income and hide it away until you’re able to purchase what you desire. This savings would be separate from what you’re using toward building your Money Machine.

Asset allocation by age

Asset allocation models like the three-bucket strategy are effective because they can be tweaked based on personal preferences, amount of money you have and circumstances such as age. Here are three age groups and how asset allocation strategy differs for them. Young adults

Those just starting out in their careers have time on their side. This means they can take more risks on volatile investments knowing the market has plenty of time to correct before they retire. Young adults may want to allocate more funds to their Risk/Growth Buckets and their Dream Bucket may be filled with money to purchase their first home or take a trip around the world before they have children.

young adult Middle-aged individuals

middle aged person

Those in their 40s and early 50s are established in their careers and have more money to put into their asset allocation strategies than their young adult counterparts. They have an eye on retirement, already have more in their allocation buckets and have a better idea of which dreams they really want to save for. They may want to put more into their Dream Bucket so they can reap the rewards of long years of work and take dream vacations or pay for a starter home for their kids. Near-retirees

If retirement is quickly approaching, those in this group need to focus on saving as much as they can without running the risk of losing their investments. This means that more money goes into the Security Bucket. Of course, if retirement savings goals are already achieved, more can go into the Dream Bucket to pay for cruises, extended visits to the grandkids or a second home somewhere warm.

What is asset allocation? It’s just one step in creating the path to financial freedom. Armed with this division of savings, you’ll be able to better set your future self up for success.

https://www.tonyrobbins.com/ask-tony/financial-diversification/

How do I diversify my investments now?

What you will get from this article:

The 4 core principles of financial success
Understand 3 critical taxes you should be familiar with
Learn how to structure your portfolio to avoid unnecessary tax penalties
How to diversify your investments for maximum returns
Discover Unshakeable: Your Financial Freedom Playbook and how it can help you reach your financial goals

diversified investment The best ways to optimize your savings

If you know anything about investing, you’ve heard the term diversified portfolio. You may have even googled “how to diversify portfolio” in hopes of learning the special formula that will lead you to financial freedom. There’s a good reason why a diversified portfolio is a buzz term these days: it’s the best way to minimize your risk while still having the opportunity for financial gain. Why? Because portfolio diversification keeps some of your money in investments that have steady – if not spectacular – growth options while allocating some to investments that are riskier but carry a higher chance or big returns. What is a diversified investment?

A diversified investment is a single product that includes several different types of investments that are not tied to each other. A mutual fund can be a diversified investment if it consists of different kinds of stocks as one may gain value while another loses it.

diversified investment What is a diversified portfolio?

diversified portfolio

A diversified portfolio, on the other hand, is the collection of investments in one person’s plan. It can consist of mutual funds, bonds, stocks, savings accounts and other investments. Some of these will be riskier in nature than others so the holder of the portfolio gains security from the safer investments and the chance for bigger returns on the riskier ones. The best ways to optimize your savings

Figuring out how to maximize your savings can be a real challenge. There’s no single formula or one right way to create a diversified portfolio because each person has their own financial priorities. But while there are many different paths to financial success, Tony’s concentrated what he learned from talking with 50 of the world’s top investors into four core principles. Think of these four rules as your investment foundation when you’re learning how to diversify your portfolio. Use these rules as the basis of your investment strategy and then select the specific investment opportunities that work best for you.

1. Protect the principal as much as possible

2. Take only asymmetric risks

3. Be tax efficient

4. Be well-diversified Core principle #1: Don't lose money

Of course, no one wants to lose money, but how do you do that? You structure your portfolio so that it can stay above water and minimize losses, even when the market dips. And, most importantly, you understand the way markets behave and don’t react to volatility. Remember, the smartest, savviest investors in the world understand that over time, the markets usually rise (this is especially true in the US). Therefore, the only way to truly lose money (if you have a well diversified portfolio) is to make a choice based on fear and sell out when the market is down.

Aside from making poor emotional decisions, how do you not lose money? The secret here is building diversified investments through asset allocation. Think of separating your funds into three distinct investment buckets – the Security Bucket, the Risk/Growth Bucket and the Dream Bucket – each with their own levels of risk and reward. Your Security Bucket is where you keep funds for things you need, like mortgage payments, insurance and your pension. The Risk Bucket can be spent on items like real estate, currencies, collectibles and more, items that could have a big reward, but may not pan out. You have to be prepared to lose whatever money you put in the Risk Bucket in order to receive big rewards. Lastly, the Dream Bucket. The Dream Bucket is the place where you can have fun with your money. This is where you can put unexpected bonuses, money for a travel fund and more and where you can really enjoy the fruits of your diversified portfolio.

2-column-do-not-lose-money Core principle #2: Asymmetric risk & reward

We have been programmed to think that the only way for us to grow our wealth involves taking huge risks. We’ve been told that in order to win big, we have to risk losing it all. But it turns out that some of the most successful people are actually the most cautious. The top investors follow a different script and take asymmetric risks that are largely based on diversified investments. Asymmetrical risk reward means that you take the least amount of risk possible for the highest level of upside. That’s how you win the game, which is the essence of a diversified portfolio.

One way to incorporate asymmetric risk is understanding investment seasons. Buy when everyone else is desperate to sell because that’s when you find the best bargains. Again, savvy, long-term investors know that seasons always change and that downturns in the market are usually temporary. What might look like a lost cause now can be acquired for a fraction of the cost that it’s ultimately worth. And, at some point, that stock or index fund will more than likely go back up. So take advantage of the stocks on the decline when learning how to diversify investments. Remember, no matter how cold the winter, there’s a springtime ahead.

computer keyboard

It’s all about finding ways to take small risks for big rewards. Swinging for the fences with no downside protection is a recipe for disaster. Learn how to incorporate asymmetric risk and reward into your diversified portfolio and not only will you adhere to the #1 rule of not losing money, you will be well on your way to creating a viable path toward financial freedom. Core principle #3: Tax efficiency

When you learn how to diversify your portfolio, you’ll see that it’s not all about the returns – it’s about what you get to keep in the end. Grappling with taxes might seem harder than creating diversified investments, but if your portfolio isn’t tax efficient, then you may not be keeping as much as you should be. In fact, you could be losing money.

As an investor focused on creating a diversified portfolio, there are three critical taxes that you must be aware of:

Standard income tax. This can be a big one. If you’re a high-income earner, your combined federal and state income taxes are likely nearing or exceeding 50%.
Long-term capital gains. If you hold your investment for longer than one year before you sell, then you will pay a long-term capital gains tax, which rings in at 20%.
Short-term capital gains. If you sell your investment before holding it for a minimum of one year, you will find yourself subject to the short-term capital gains tax. And right now, the rates are currently the same as standard income taxes. That means it’s usually more beneficial to hold onto your investments for longer than a year.

2-column-tax-efficiency

Between these three taxes, you can only imagine how much you could be paying Uncle Sam and how this cuts into your diversified investments. And if you understand the power of compounding, then you realize how a 50% tax bite as opposed to a 20% tax bite can mean the difference between achieving your financial goals a decade early or never achieving them at all.

So how do you structure your diversified portfolio to help reduce your tax bill and keep more of your earnings so you can compound your investments?

Defer taxes. Whenever possible, you must invest in ways that allow you to defer your taxes. Whether you invest in a 401(k), an IRA, an annuity or a defined benefit plan, deferring taxes means you can compound tax-free and pay tax only at the time you sell the investment.
Avoid short-term capital gains. If you do choose to sell any investment held outside of a tax-deferred account, such as an IRA, make sure, if at all possible, you hold it for at least one year and one day in order to qualify for the long-term capital gains rate.
Be aware of mutual funds. Mutual funds provide a certain level of portfolio diversification that is attractive to investors. But did you know that the vast majority of mutual funds do not hold on to their investments for an entire year? And you know what that means? Unless you are holding all of your mutual funds inside your 401(k), you’re typically paying ordinary income taxes on any gains. This means you could be paying as much as 35%, 45% or even 50% in income tax, which is taking a devastating hit on your compounding ability.
Consider index funds. Index funds do not constantly trade individual companies; instead, they typically hold a fixed basket of companies that charges only if the index that the fund tracks changes, which is actually quite rare. This means you get to invest in an index for the long run, which helps you avoid getting hit by taxes each year. Instead, you are deferring the taxes, since you haven’t sold anything, and your money can stay in the fund and compound without the tax “drag” on your returns.

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Have additional questions about taxes or how to create diversified investments? Consult a fiduciary or a tax strategist to help you better understand all the ways you can maximize the compounding process and create more net growth in your financial freedom fund. Remember, tax efficiency equals fast financial freedom, and could save you years or even decades of work. Core principle #4: Diversify! Diversify! Diversify!

Knowing where to park your money and how to divide it up is the single most important skill of a successful investor who is focused on diversified investments. Effective diversification not only reduces some of your financial risk, but it also offers you the opportunity to maximize your returns. That is to say, a diversified portfolio is a strong portfolio.

Wait, didn’t we already diversify between the Security Bucket and the Risk Bucket in principle #2? Yes! Now it’s time to take it one step further. Now you must diversify within those buckets so that you can structure a diversified portfolio for all seasons. If you keep all your assets in the same class, you’re not setting yourself up for success. How to diversify your portfolio

Here are the 4 ways you must diversify your portfolio:

Diversify between assets within different classes (real estate, stocks, bonds, commodities, private equity)
Diversify your holdings within asset classes (avoid concentrating putting all of your money into one stock or bond; you must diversify even within your asset classes)
Diversify globally (different markets, countries, currencies)
Diversify timelines (dollar-cost averaging, maturity date)

2-column-retirement-playbook

how to create a diversified portfolio

A truly diversified portfolio should include securities from all of these six classes:

US stocks
US fixed income vehicles like savings bonds and money market funds
Foreign stocks to provide a hedge against the declining dollar
Commodities like oil, real estate and gold
Foreign fixed income including both corporate and government products
Equity in your home

Depending on how quickly you want to reach your financial goals, where you are in your life and your comfort with risk, you can use asset allocation to determine the exact mix of these six products and how they should comprise your diversified portfolio. Keep in mind any liquidity needs you may have before retirement and how each type of asset will be taxed or penalized if you need to withdraw money early. Working with a financial planner will help you create diversified investments that best fit your needs and plans for the future.

By allocating your money to such a diverse range of assets, you will be able to set yourself apart from 99% of all investors. And the best part? A diversified portfolio will provide the best of both worlds by decreasing your chances of risk and increasing your probability of return.

Want to learn more about a diversified portfolio and how to harness the power of the Core 4? Get all the details in Tony Robbins’ Unshakeable audio; unlock key secrets on how to create a diversified portfolio, make smart investing decisions and master your personal finances today.

What is financial freedom?

One financial freedom definition is having the monetary stability to do what you want in life without having to worry about your bank account. Financial freedom is being able to take that amazing trip to Tahiti without worrying about not coming into the office. It’s buying the house that your family dreams of and still having the funds to pursue your other interests.

Some people equate financial freedom with retirement, and while being free to retire when you want is important, financial freedom does not need to wait until then. Depending on your unique situation, financial freedom could mean having the means to pursue your passions and turn them into profit. It could mean not relying on a 9-to-5 job so you can spend time with your kids or support your partner while they work to build a business they love. Financial freedom means connecting to your deepest values and having enough money in the bank to support those values without having to worry about paying the bills.

What is financial freedom? Essentially, it’s the key to unlocking an extraordinary life.

Take steps toward financial freedom today with free tips from Unshakeable Financial freedom vs. financial independence

Many people use the terms financial freedom and financial independence interchangeably, but they don’t mean the same thing – and to truly work toward freedom, it’s important to know the difference. Financial independence hinges on the key word “independence.” It’s the ability to meet your own financial needs without relying on anyone else. When you’re financially independent, you have a steady source of income, pay all of your bills yourself (including any debts like student loans or a mortgage) and have some money in savings. You may even start investing. But you’re not yet financially free.

Financial independence is an essential first step to financial freedom, but it isn’t the end game. Financial freedom is a long-term plan to build the life of your dreams. As Tony Robbins says, “Success is doing what you want to do, when you want, where you want, with whom you want, as much as you want.” That’s also financial freedom. Is financial freedom possible?

For many people, true financial freedom seems like a far-fetched dream. Student loan debt is at an all-time high. The economy is unpredictable. Investing can be intimidating. We spend more time working and have poor work-life balance, yet make less money. What is the solution to all of these seemingly impossible obstacles? It’s to take responsibility and make the changes you desire.

Tony tells us, “Your income right now is a result of your standards; it is not the industry; it is not the economy.” It’s easy to blame the economy and resign yourself to the way things are. It’s much harder to raise your standards and work toward the life you want. But when you do, you’ll find that financial freedom is more realistic than you may think. 6 steps to financial freedom

Breaking down the steps to financial freedom via building a massive action plan (MAP) empowers you to connect emotionally to your goal and lay out the actionable steps needed to achieve it. Step 1: Determine your number

What is financial freedom to you and your family? One of the most important steps to financial freedom is thinking about your number or the amount of money required to help you become financially free. There’s no magic number for everyone. There’s a certain amount of money you could make that would enable you to live freely and pursue your passions. How much money is that?

Take into consideration normal living expenses, a cushion for unanticipated expenses and enough surplus so you won’t feel financial anxiety. Write down a number that makes sense to you, keeping in mind it might seem large. Now, do some analysis. How much are you currently earning? What do you need to do differently to make this amount of money?

how to gain financial freedom Step 2: Address limiting beliefs about money

Financial fear can affect anyone – even those who have plenty of money in the bank. To live the life of your dreams, you must address financial fear and the limiting beliefs that are behind it. Do you believe you’ll never be wealthy because no one in your family has ever experienced financial freedom? Do you think you’re not talented or smart enough to earn the money to be financially free? Once you have identified these beliefs, you can replace them with empowering beliefs like “I am an abundance maker” or “I am worthy of experiencing financial freedom.” Step 3: Get a handle on your finances

get a handle on your finances for financial freedom

Just because you believe you’re worthy of making the money you deserve doesn’t mean all your old financial problems will disappear. In this step, you need to take a good, hard look at your finances and see which messes need to be cleaned up. Do you have a lot of unsecured debt? Balances on credit cards with high interest rates? Are any of your accounts in collection?

If you owe money to others – especially if it comes with a high interest rate – a good chunk of your monthly income will be going to someone else. If you get a bonus or a raise, immediately use those funds to pay off your debt. Use the snowball method to pay off your smallest debt first, then use the money you would have put toward that debt to start paying down the next one. Once you’ve gotten out of debt and developed a budget, you’ll have more money each month and more peace of mind. Step 4: Create a short-term strategy for building savings

Achieving financial freedom will not happen overnight and you need to have a buffer to pay for the expensive surprises life can throw at you while you put your plan into action. Once you’ve gotten out of debt, you will have more money to budget each month and to put into savings. Once you’ve created a six-month emergency fund that can account for everything – from a sudden income loss to major medical issues – you can then put those extra dollars toward your money-making machine.

Having this emergency fund is practical and it’s necessary for your mental well-being. When you know you have a financial cushion, you can take more risks at work and say yes to those experiences that bring you true happiness without the fear or guilt that would otherwise accompany them.

couple learning financial freedom Step 5: Create the machine

developing a financial freedom plan

Now it’s time to find a way to make financial freedom a reality. Start by creating a money-making machine. You can do this by taking advantage of the power of compound interest. Divide your money into three imaginary buckets: security, risk/growth and dreams. Your security bucket is where all the money for your bills goes – you need this money to make your life function. Then, your risk/growth bucket is for things like high-yield bonds and stocks.

Lastly, your dream bucket is money that you can have fun with. When you receive a bonus or win a sum of money, it goes here. Many people taking steps to financial freedom find it helpful to work with a fiduciary who can give them information about investment options and help them develop the best strategy for their unique needs. Step 6: Evaluate and make changes

Pay attention as you work through the previous steps to financial freedom and make changes when necessary. Watch your portfolio for red flags that could be affecting your returns. Put more money into your buckets when you or your partner receives a raise or takes a new job with a hike in pay. Watch the market and diversify your investments as needed.

If you’re working with a fiduciary, evaluate how that relationship is going and make sure they are putting your interests first and that you feel comfortable with your relationship. If your broker is a bully or you don’t trust the advice they are giving you, you’re under no obligation to stay. A new financial advisor can open your eyes to new options or you may find that your financial intelligence has gotten to the point where you can handle investing on your own.

change

Remember that the question “What is financial freedom?” can be answered differently depending on your unique goals, values and standards of living. Knowing what financial freedom means to you will help you make your financial dreams a reality. By actively managing your finances and using the power of interest, you can one day achieve financial freedom. Financial freedom isn’t about being rich – it’s not about power or prestige – it’s about having the flexibility to make the most out of your life without relying on a job or paycheck.

Financial freedom is attainable, but you need to begin working toward it now.

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FIN

FION

Play asymmetrical rewards:1 to 5. Risk 1$ to gain 5$ (and not 1$ to gain 20%).

What you will get from this article:

Understand the compound interest definition
Discover what can happen with $1 when compound interest is maximized
Learn how you can put compound interest to work for you – starting now
Find out how to access the ultimate financial resource, Unshakeable by Tony Robbins

What is compound interest, and why bother with it? Even though it might appear that investing $1 right now is silly, even that small compound interest investment is powerful and suddenly that $1 is worth a whole lot more.

It might seem easier to make a larger, riskier decision right off the bat, but in truth, compound interest is perhaps the most powerful tool in your investment arsenal. Albert Einstein once called it the most important invention in all of human history. So why do so few of us take advantage? Most people simply don’t take the time to fully understand the concept.

But you’re not one of those people. You want to fully understand the definition of compound interest and how it works so that you can mindfully save. Here’s how a compound interest investment puts time on your side and leads to you to financial freedom, one dollar at a time.

Discover more investment tips from the smartest minds in finance! Compound interest definition

What is compound interest? Let’s start with a dictionary compound interest definition to establish a core meaning of the term:

Compound Interest: A method used to calculate interest paid on both the principal and on accrued interest.

In other words, compound interest is interest on interest. It occurs when you reinvest interest rather than take it as a payout. This means that interest in the next period is earned not only on the principal sum, but also on any interest that was previously accumulated. The amount you earn is based on how much money you have invested, the percentage of interest that is paid on that amount and on the compounding frequency or number of times per year interest is paid out. Compounding frequency could be yearly, half-yearly, quarterly, monthly, weekly, daily or continuously. The more frequently interest is compounded, the more interest you will earn.

Let’s take an example with numbers to more fully understand the definition of compound interest. If you had $100 and an annual compound interest rate of 3%, at the end of year one you’ll have $103. For year two, you earn interest on all $103, meaning you’ll earn $3.09 in interest that year instead of an even $3.00. For year three you’ll earn interest on $106.09, and so on. After 20 years you’d have $100 * (1+.03)20, so $180.61 total.

Even small amounts of money make a difference. Just see what can happen to $0.10 if you doubled it 19 times:

As you can see in the video, with each round you play, the number gets remarkably bigger:

Tony’s golf analogy shows that compound interest can make a huge difference in your investments, whether in savings, bonds or stocks.

Power of compounding illustrated

Simple interest vs. compound interest

Simple interest is interest that is only earned on the principal. For example, if you had $100 and a simple interest rate of 3%, you’d earn $3 each year. Your interest earnings would never change because the principal stays the same – so you’d earn $3 in year one, $3 in year two, etc. After 20 years you’d have $100 + ($3*20), so $160 total.

Per our example above, compound interest gives $20 more than simple interest over the same time period. And while that may not seem like much, it can really add up over time.

Another essential piece of the puzzle is to know the difference between APR and APY. APR stands for annual percentage rate and is an annual rate of interest that doesn’t take compounding into account. APY stands for annual percentage yield. This is a percentage rate that reflects the total amount of interest paid on the account. It’s based on the interest rate compounded daily for a 365-day period. You’ll see this rate mentioned on some types of compound interest investments. The compound interest formula

To really go in-depth about the compound interest definition, let’s take a look at the formula. It may look complicated at first, but it’s actually relatively simple. The formula is A = P (1 + r/n) (nt). To calculate, enter the principal amount (money you’ve initially invested) into the P section, interest rate with r as the decimal, n as the number of times the interest is compounded and (nt) as the time the money is invested for.

For example, if you invested $5,000 into an account with an annual interest rate of 5% that is compounded monthly, it would look like this: A = 5000 (1 + 0.05/12) (12 (10)), which equals 8235.05. This means that your financial investment of $5,000 is now worth over $8,000 in 10 years’ time. What is compound interest? Examples with numbers

Do you want to use the power of compound interest to become financially unshakeable? Here are some compound interest examples that better illustrate the answer to the question, “What does compound interest mean?”

1. You make an initial investment of $10,000 for a period of five years and that investment earns the return of 3%, which is compounded monthly. At the end of the five-year term, your initial $10,000 investment has grown to $11,616.17.

simple interest

compound interest

1. You make an initial investment of $10,000 for a period of two years and that investment earns a return of 2%, which is compounded quarterly. At the end of the short 2-year term, your initial investment has grown to $10,404.07

2. You make an initial investment of $1,000 for a year and that investment earns a return of 5%, which is compounded twice a year. At the end of the year, your $1,000 investment has grown to $1,050.63.

annual percentage yield

Another compelling example comes from financial expert Burton Malkiel, who created the idea of index funds. His story of two brothers investing is another great example of how to make a money machine.

Take two brothers, we’ll call them William and James. Both are 65 years old. Based on the information below, which brother has more money in his account at the age of retirement when they compare their returns? William, who invested for 20 years, or James, who invested for 25? Click below to find out.

Yes, William earned a whopping 600% more than his brother even though he invested the exact same amount for less time. This illustration makes it clear to see why compound interest is part of the language of the wealthy. Even if you’re no longer in your 20s, you can still take advantage of compound interest by putting away what you can now. Every day you wait, you’re losing out on extra income. How to make compound interest work for you

Clearly, it pays to invest as early as possible to maximize your earnings. So why not start now? Perhaps you want to take that big bonus or raise and take a vacation or buy a new car. Or maybe the reason you’re not saving now is you’re already squeezing the most out of every paycheck.

It’s time to throw out the excuses, because you can invest just $1 or $10 a week to make compound interest work for you.

What would happen if you started with $1 and contributed $1 every week to a savings account with an APY of 0.25%? In 10 years, you’ll have $527. In 20 years, you’ll have $1,067.

If you started with $1 and contributed $10 every week to a savings account with an APY of 0.25%, how much would you have in 10 years? A few hundred maybe?

You’d actually have $5,266.60. In 20 years, it would be $10,665.

The very definition of compound interest is that the more you continue to add to your savings, the more money you have to earn interest. Basically, the more you put into your investment, the faster it grows. This is hands-down the best way to achieve one of Tony’s financial resolutions of speeding up savings.

Compound interest is found in many types of investments. Unfortunately, U.S. savings accounts now generally have extremely low APYs; most of them have been below 1% since the Great Recession. However, as our example shows, even a few tenths of a percentage point plus regular savings contributions can make a huge difference due to how compound interest works.

The best way to put compound interest to work for you is through other investment types, like a Roth IRA, SEP IRA, 401(k) or even a Coverdell ESA, an education savings account that can help you pay for your children’s education. With these compound interest investments, there is no threat of loss and a guaranteed rate of return.

Curious to learn more about smart investing and gaining your financial freedom? Check out how to plan your financial future and smart ways to plan for retirement. Harness the power of compound interest and see just where $1 can take you

In many ways, owning a business is a metaphor for life; it’s a balancing act that requires resilience and skill in order to stay afloat. If you’ve been in business for long enough, however, it’s likely you’re beginning to wonder if making a profit is a worthy–enough goal. Rather than subsistence, you’re likely craving abundance and the sense of security it provides.

You might realize that building wealth is key to creating prosperity. But many people struggle with how to build wealth due to misconceptions about the nature and process of wealth-building. The good news is that with the right mindset and effective strategies in place, you can work your way up the levels of wealth, elevating your business – and your life.

Start building wealth through your business ventures today The five levels of wealth

Building wealth on a large scale is a massive goal – and if it doesn’t feel impossible, you’re not dreaming big enough. To bring your vision to life, take those big dreams and break them down into smaller, achievable goals using the five levels of wealth.  Financial stability

means you are not only able to pay your monthly bills, but also have an emergency fund of at least three months of basic living expenses. You are saving more than you spend and working to become debt-free. Financial strategy

Is when you begin to think about investments. Yes – it’s time to start investing this early in the process. The earlier you begin leveraging the power of compounding, the more money you will have in the long-term. Financial security

Is all about confidence. You have enough saved and invested that if you lose your job or an economic winter occurs, you can get through it and come out on the other side just as financially secure. Financial freedom

It means you are able to not only survive hard times, but to do what you want, when you want, no matter what. Your money machine is humming along nicely. This is when you can buy that nice car or expensive vacation – and not before. Financial abundance

Is the ultimate dream. You have so much money, you can give it away. Giving back is exactly what you must do. Money itself isn’t wealth. It’s a tool you can use to find true fulfillment in other ways.

It may take a lifetime to reach financial abundance, but it can be done. Remember what Tony says: “There is a powerful driving force inside every human being that, once unleashed, can make any vision, dream or desire a reality.” Find your driving force and use it.

Whether you’ve just started the process of building wealth or you’ve reached financial freedom, you can benefit from strategies that help you adjust your mindset and not only create wealth, but keep it.

1. Understand that building wealth is about more than just money

The first step in understanding how to build wealth is realizing that abundance is about far more than just money. Tony makes a distinction between monetary wealth and true wealth. While the former secures your purchasing power, only the latter can secure genuine, lasting happiness. Money is merely a vehicle to carry you to financial freedom. Then, with financial freedom in place, you become able to pursue your dreams and find lasting fulfillment.

When you view wealth as a way to live an extraordinary life, you can eliminate any limiting beliefs about money that are subconsciously sabotaging your wealth-building strategies. Keeping this distinction between money and true wealth in mind will prepare you for the second step in building wealth: focusing on finances as they relate to your values. 2. Align your approach to building wealth with your purpose

The second step in building wealth is cementing an unshakeable mindset that recognizes your finances as a tool for pursuing what matters most to you. By building your deepest values into your approach to creating wealth, you align your financial decisions with your passions. To discover your deepest values, ask yourself: What do I want most out of life? What is missing in my life? What are my biggest fears? What do I feel is impossible? What do I want for the people I love?

Once you get in touch with your value system, you can align your spending priorities accordingly and get on the right path to building wealth, which includes building high-income skills. Incorporate these priorities into a feasible budget for living below your means and track your spending to hold yourself accountable. Once you’ve developed a baseline of financial freedom, you must “put your wealth to work” by investing it wisely.

3. Don’t trade time for money

The biggest difference between time and money is that you can always make more money – but you cannot create more time. When focusing on building wealth, too many people make the mistake of thinking that working more is the key to earning more. Unfortunately, when money is tied to work you must perform, you never really get to enjoy the wealth you build, which can lead to getting overly stressed.

Instead of trading time for money, focus on developing wealth-building strategies that involve passive income. Passive income comes from starting a business or creating a team that earns you money even when you’re not working. It can also be the product of smart investing.

4. Focus on investing

While developing a budget, saving money and making a good income are all important, the best wealth-building strategies involve investing. A smart investment strategy involves diversifying your portfolio, minimizing taxes, finding investments that match your level of risk tolerance and understanding the value of time and real returns.

There is plenty of information out there about investing tips and strategies and those who are smart about building wealth are constantly seeking new ways to educate themselves on the process. Learning how to invest wisely when figuring out how to build wealth is a necessity if you want to take your earnings to the next level.

5. Overcome emotional spending to retain your wealth

A critical component of building wealth that stands the test of time is keeping the wealth you accrue. Like growing wealth, keeping wealth requires making mindful decisions about how you invest and spend your money. Instead of letting emotional (unmindful) spending derail your finances, you must learn to control your emotions.

As you develop emotional mastery, you’ll find that, by becoming aware of how your feelings are influencing your financial choices, you gain the ability to make deliberate spending choices. In turn, as you tap into your inner creativity while sticking to your financial strategy, you’ll become confident in your ability to manage your finances and easily find ways to build wealth. The resultant cycle creates upward momentum – in learning how to build wealth effectively, you increase your self-efficacy, which in turn allows you to build more wealth.

6. Work on personal growth

Tony Robbins’ philosophy on financial freedom centers on self-discovery and personal growth as the cornerstones for building wealth. Personal growth is so pivotal to responsible money management that research has investigated the relationship. A study of more than 600 millionaires found that millionaires invest more time in personal-growth activities like reading and exercising than do non-millionaires.

Millionaires also manage time wisely, likely recognizing time as a limited resource that must be utilized strategically if they want to achieve their goals of building wealth. The study concluded that, with millionaires as the ultimate example of how to build wealth, a person’s ability to develop prosperity hinges on their ability to engage in self-discovery.

Self-discovery starts with examining your beliefs about money and wealth and identifying what is holding you back or contributing to bad financial habits. You can then go on to explore any gaps in your knowledge or education that are limiting you on your path to building wealth. Do you need to learn more about how to invest wisely? Do you require an advanced degree or additional training to excel at your job and fund your wealth-building strategies? From there, identify where you can improve and create a personal growth plan to work on those areas. Enlist experts such as a financial planner or business coach to help you overcome obstacles along the way.

7. Cultivate positive habits

Learning how to build wealth doesn’t need to be complicated. Instead, discovering your true self is really just a matter of bringing awareness to your actions, behaviors and underlying beliefs. Take, for example, actor Russell Brand who famously overcame addictive behavior by cultivating discipline and awareness into his life.

In learning to recognize negative patterns, you too can take the first step in breaking free from unhelpful behaviors that are holding you back from building wealth in your life. To jump-start your own process of self-discovery, incorporate mindfulness meditation into your daily routine. Tony Robbins completes a 10-minute priming exercise every morning to channel his energy and focus for the day. By bringing your body and mind into alignment via focusing your breath and attention, you become able to master your emotions and gain deeper insight into what drives you – so you can use that to begin building wealth.

When you understand the connection between building wealth and the life of your dreams, you can identify what’s holding you back and put in place wealth-building strategies that will take your money – and your life – to the next level.

What you will learn from reading this article:

• How to start investing money in stocks, real estate and mutual funds to obtain the greatest financial rewards in the future

• When to start investing – as soon as possible, rather than waiting for the perfect moment

• How to build your money-making machine by automatically putting aside a small portion of your paycheck each month

• How wealth generates over time due to the power of compounding

when to start investing

When is the best time to start investing your money? Right from your first paycheck? When you have a spouse and are looking to start a nest egg? Sometime in the more distant future?

Did you ever learn to invest? Chances are that you’ve been waiting for the “right” moment to start investing, but what makes that moment happen? And even then, can you learn how to start investing money with no prior stock market experience? If you want to discover how and when to start investing, follow these tips.

When is the ideal time to start investing?

The short answer is: Invest today, not tomorrow. Because even if you just start investing a little bit of your savings, that amount will have that much longer to grow, thanks to the power of compounding. When to start investing isn’t a question of your income or your debt – anyone can commit a portion of their paycheck to investing. You may need to cut your spending in other areas, but it is worth it to create an unshakeable financial future.

What is the best amount to start investing?

While when to start investing isn’t up for debate, the amount you invest depends on a few factors. You absolutely do not need a lot of money to start investing. Certain types of passive income – like real estate investment trusts, money market accounts and index funds – are easy to understand, reliable and require less than $500 to get started.

What else do I need to consider before investing?

If you want to start investing beyond a basic retirement account, like stocks or mutual funds, there are a few things to consider.

Cash flow, debt and budget. Are you realistic about your current financial situation? Anyone can invest a percentage of their paycheck in a 401K or IRA. But if you’re wondering, “How do I start investing in stocks?” or thinking about another higher-risk area, make sure you first pay down debt and have a good idea of your own cash flow and budget. Financial literacy. You don’t need an MBA to learn how to start investing money. But you do need to know certain financial terms and have a basic understanding of how things like the stock market work.

risk tolerance in investing

Risk tolerance. When to start investing and the amount you invest depends on your risk tolerance. Those with a high risk tolerance are willing to invest more, while those with low risk tolerance may want to start smaller. If you’re thinking about investing a lot of money, especially in a high-risk area, talk to an expert who can provide guidance. Goal setting. You won’t know if your investments are successful if you’re not tracking them. As with any other area of your life, always set goals. Specific, measurable goals will keep you on track and provide benchmarks that can help you refine your investing strategy.

Get started creating a money machine

You’re already a financial trader. Maybe you don’t see it that way, but if you work for a living, you’re trading your time for money. That’s probably the worst trade you can make. Why? Because there’s always more money, but you can never get more time. How do you stop this cycle? How can you keep time on your side while still making a profit? The answer is to create what we call a money machine – money that will end up giving you an income for life.

Set aside a percentage of your paycheck to pay yourself first. Maybe you set aside 10% or 15%. Maybe 3% or 5%. This number will increase over time as your income grows, but decide what portion of your paycheck you’ll invest in yourself now. This is really how to start investing money in the future you deserve. Remember, this amount is off the top and doesn’t factor in any other spending. Your other expenses, such as housing costs, utility bills and restaurants will come next.

The trick is then to put this money somewhere it will begin to work for you – like real estate. “Under your mattress” doesn’t have very good interest rates. But put this set percentage of your earnings into savings no matter what happens and you’re going to slowly start building your financial future. Even if it seems like you’ve already accounted for every penny, you can start saving right now and start investing.

Automate your savings

The best way to set your money machine in motion is to automate your savings. You’ve probably heard this before – but it’s true. When learning how to start investing money the secret is making saving as easy as possible, which means not seeing that money in the first place. That way, you’re not even tempted to spend it somewhere else. You’ll always spend what you have, and reducing that just a little more will pay off. It doesn’t matter if you’re living paycheck to paycheck or earning six figures – save now and you’ll be able to reap the rewards later. You’ll be building a money machine that makes money when you sleep, when you eat and when you eventually stop working. Here’s how you can start investing and saving automatically:

1. Pick the percentage of your income you’re going to set aside automatically. There’s no right answer here, so trust your instincts. From 3% to 10% to 50%, the amount is entirely up to you. Track how much you earn and spend in a month and see how much you can put aside. Save as much as you can, because that money will grow in the bank.

2. If you’re already enrolled in a retirement account through your job, ask HR to automatically contribute your chosen percentage amount directly into that account. If you’ve already got automatic deductions, you can update them to the amount you’ve chosen.

3. Self-employed, own your own business or working as a contractor? You can start a retirement account with a bank or financial institution. Then just set up an automatic transfer from your checking account.

Say you get a raise or other influx of cash – you can stick that into your money machine directly, spread it among your three asset allocation buckets or increase your ongoing savings percentage to match.

Don’t wait to learn how to start investing money – you’ll never get that time back that could have been spent making money. But remember, not all investments are created equal. Learn more about the power of compounding and how to build a smart financial blueprint to get your future under your control. Diversify your investments

A general rule of thumb is to diversify your investments. When you make multiple investments, you reduce the risk for your total investment in the event of one investment’s poor performance. Diversification serves as a buffer, so it’s fundamental to your broader financial freedom strategy. Since some investments generate greater returns than others, you want to be smart in your choices.

Learning how to diversify your investments helps balance your portfolio, with each type of investment featuring unique benefits and risks. Two of the most common questions about how to start investing money are about stocks and mutual funds. How do I start investing in stocks?

Stocks may seem intimidating, but you don’t need a fortune to get started. According to NASDAQ, you can get started investing in stocks with as little as $1,000. When you’re learning how to start investing money in stocks and bonds, your general rule of thumb is to maximize your returns by minimizing your costs. Your costs of investing can include deposit requirements, account minimum restrictions, commissions and account fees. Secure the lowest costs you can while diversifying as much as possible.

how to start investing money

A mutual fund is another name for an investment company that pools money from many investors. The mutual fund uses the pooled money to invest in various assets (like stocks, bonds and real estate) with any returns added to the pool. When you invest in mutual funds by purchasing shares in the fund, each share represents ownership in part of the fund’s assets. Mutual fund investments are attractive because they offer a single diversified investment package managed by professionals.

1. Source 1:

   https://www.tonyrobbins.com/business/how-to-get-started-in-real-estate/

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you allocate to your Security Bucket? You want investment options with low volatility that you can rely on.

a blue box with a white label These include:

Cash/cash equivalents (such as money market funds with checking privileges)
Bonds (such as TIPS, or Treasury Inflation-Protected Securities)
Market-linked CDs
Your home – An asset, but not an investment. This is your sacred sanctuary, so you shouldn’t be “spending” it!
Your pension (if you’re lucky enough to have one)
Guaranteed annuities
Your life insurance policy
Structured notes (One with 100% principal protection, purchased through an Registered Investment Advisor)

These types of investments grow slowly, especially at first, but the power of compounding means asset allocation models that incorporate these investments may reap positive rewards in a secure environment over time. Experts would agree that this is step one, and the most crucial component of worthwhile asset allocation strategies. You can remember this Tony Robbins quote when you envision your Security Bucket: “Most everybody thinks that if I want to get big rewards I need to take huge risks, but if you keep thinking that, you’re going to be broke.” The Risk/Growth Bucket: fast and volatile

Asset allocation examples that focus on the Risk/Growth Bucket are exciting because they can gain some truly amazing returns, but they are usually accompanied by volatility.

All effective business ventures inherently have some level of financial risk. That volatility shouldn’t scare you away, and the Risk/Growth Bucket isn’t just for serial risk-takers. It’s part of a well-rounded asset allocation strategy and often leads to the biggest returns in the end. Remember, the market will always rise and fall. The most successful investors know that you don’t get out when the going gets tough.

The bottom line? Whatever you put in your Risk/Growth Bucket, you have to be prepared to lose or live through volatility (depending on the risk of the investments). Take your time making this tough decision and choose wisely when deciding what percentage of your funds you want to place here.

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What kind of investments fit into your Risk/Growth Bucket? These seven main asset classes fit the bill of potential high returns… or deep losses:

Equities – Another word for stocks, or ownership shares of individual companies. Owning individual stocks is far riskier than vehicles for owning many of them at once, like mutual funds, index funds and exchange-traded funds (ETFs).
High-yield bonds (aka junk bonds)
Real estate
Commodities (gold, silver, oil, coffee, cotton, etc.)
Currencies
Collectibles
Structured notes (anything without 100% principal protection)

Depending on your personality type, it can be easy to get caught up in the idea of reaping great returns and forget how much you are risking in the process. It’s a balancing act, and proper asset allocation models involve finding the biggest rewards that come with the smallest amount of risk. That’s why proper diversification is key when deciding how to allocate savings. Ultimately, it’s the right mix of the Security and Risk/Growth Buckets that makes for smart, strategic asset allocation. Don’t forget to diversify

Remember, don’t just diversify your savings between your buckets, but also diversify within them as well. As financial master Burton Malkiel shared with Tony, “Diversify across securities, across asset classes, across markets – and across time.” Spreading your money across different investments can decrease your risk and increases your upside returns over time. The Dream Bucket: investing in fun

The third and final bucket in this asset allocation strategy is for you to have fun with. With your Dream Bucket you set aside something for yourself and those you love so that all of you can enjoy life while you’re building your wealth. It’s meant to excite you, put some zest in your life so you want to earn and contribute even more. Sound silly? Think of the items you’re saving for in your Dream Bucket as strategic splurges. They’re a key part of sustainable asset allocation strategies, and also necessary for your own sense of fulfillment and peace of mind.

With this bucket, be creative. What can you not stop dreaming about? What would be a glorious experience you’ll remember forever? What would help you stay connected to your partner or reconnect with yourself? It could be season tickets to your favorite sports team or local theatre. Maybe a new car – one that isn’t so practical. Perhaps you fly a lot and dream of upgrading from Economy to Business Class? Your imagination is the limit. Remember that your dreams are not designed to give you a financial payoff; they are designed to give you a greater quality of life.

a purple box with a logo

Don’t just save for the life you want. Make sure you live it by being realistic with your bucket allocation. If you know that travel is a priority in your life, make it a point to save for one big trip a year. Don’t accumulate the funds and let them sit for a trip 10 years down the road.

There are three ways in which you can fill this bucket:

Jackpots – If you get a bonus or a windfall of some kind, use it to fuel your dream tank.
Your Risk/Growth Bucket gets a positive hit and you score big. In this case, you may want to take some of your earnings and put one-third of these unexpected dividends into each bucket. You’re spreading out your risk, increasing your security and getting to achieve your dreams. Not bad!
Save a set percentage of your income and hide it away until you’re able to purchase what you desire. This savings would be separate from what you’re using toward building your Money Machine.

Asset allocation by age

Asset allocation models like the three-bucket strategy are effective because they can be tweaked based on personal preferences, amount of money you have and circumstances such as age. Here are three age groups and how asset allocation strategy differs for them. Young adults

Those just starting out in their careers have time on their side. This means they can take more risks on volatile investments knowing the market has plenty of time to correct before they retire. Young adults may want to allocate more funds to their Risk/Growth Buckets and their Dream Bucket may be filled with money to purchase their first home or take a trip around the world before they have children.

young adult Middle-aged individuals

middle aged person

Those in their 40s and early 50s are established in their careers and have more money to put into their asset allocation strategies than their young adult counterparts. They have an eye on retirement, already have more in their allocation buckets and have a better idea of which dreams they really want to save for. They may want to put more into their Dream Bucket so they can reap the rewards of long years of work and take dream vacations or pay for a starter home for their kids. Near-retirees

If retirement is quickly approaching, those in this group need to focus on saving as much as they can without running the risk of losing their investments. This means that more money goes into the Security Bucket. Of course, if retirement savings goals are already achieved, more can go into the Dream Bucket to pay for cruises, extended visits to the grandkids or a second home somewhere warm.

What is asset allocation? It’s just one step in creating the path to financial freedom. Armed with this division of savings, you’ll be able to better set your future self up for success.

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How do I diversify my investments now?

What you will get from this article:

The 4 core principles of financial success
Understand 3 critical taxes you should be familiar with
Learn how to structure your portfolio to avoid unnecessary tax penalties
How to diversify your investments for maximum returns
Discover Unshakeable: Your Financial Freedom Playbook and how it can help you reach your financial goals

diversified investment The best ways to optimize your savings

If you know anything about investing, you’ve heard the term diversified portfolio. You may have even googled “how to diversify portfolio” in hopes of learning the special formula that will lead you to financial freedom. There’s a good reason why a diversified portfolio is a buzz term these days: it’s the best way to minimize your risk while still having the opportunity for financial gain. Why? Because portfolio diversification keeps some of your money in investments that have steady – if not spectacular – growth options while allocating some to investments that are riskier but carry a higher chance or big returns. What is a diversified investment?

A diversified investment is a single product that includes several different types of investments that are not tied to each other. A mutual fund can be a diversified investment if it consists of different kinds of stocks as one may gain value while another loses it.

diversified investment What is a diversified portfolio?

diversified portfolio

A diversified portfolio, on the other hand, is the collection of investments in one person’s plan. It can consist of mutual funds, bonds, stocks, savings accounts and other investments. Some of these will be riskier in nature than others so the holder of the portfolio gains security from the safer investments and the chance for bigger returns on the riskier ones. The best ways to optimize your savings

Figuring out how to maximize your savings can be a real challenge. There’s no single formula or one right way to create a diversified portfolio because each person has their own financial priorities. But while there are many different paths to financial success, Tony’s concentrated what he learned from talking with 50 of the world’s top investors into four core principles. Think of these four rules as your investment foundation when you’re learning how to diversify your portfolio. Use these rules as the basis of your investment strategy and then select the specific investment opportunities that work best for you.

1. Protect the principal as much as possible

2. Take only asymmetric risks

3. Be tax efficient

4. Be well-diversified Core principle #1: Don't lose money

Of course, no one wants to lose money, but how do you do that? You structure your portfolio so that it can stay above water and minimize losses, even when the market dips. And, most importantly, you understand the way markets behave and don’t react to volatility. Remember, the smartest, savviest investors in the world understand that over time, the markets usually rise (this is especially true in the US). Therefore, the only way to truly lose money (if you have a well diversified portfolio) is to make a choice based on fear and sell out when the market is down.

Aside from making poor emotional decisions, how do you not lose money? The secret here is building diversified investments through asset allocation. Think of separating your funds into three distinct investment buckets – the Security Bucket, the Risk/Growth Bucket and the Dream Bucket – each with their own levels of risk and reward. Your Security Bucket is where you keep funds for things you need, like mortgage payments, insurance and your pension. The Risk Bucket can be spent on items like real estate, currencies, collectibles and more, items that could have a big reward, but may not pan out. You have to be prepared to lose whatever money you put in the Risk Bucket in order to receive big rewards. Lastly, the Dream Bucket. The Dream Bucket is the place where you can have fun with your money. This is where you can put unexpected bonuses, money for a travel fund and more and where you can really enjoy the fruits of your diversified portfolio.

2-column-do-not-lose-money Core principle #2: Asymmetric risk & reward

We have been programmed to think that the only way for us to grow our wealth involves taking huge risks. We’ve been told that in order to win big, we have to risk losing it all. But it turns out that some of the most successful people are actually the most cautious. The top investors follow a different script and take asymmetric risks that are largely based on diversified investments. Asymmetrical risk reward means that you take the least amount of risk possible for the highest level of upside. That’s how you win the game, which is the essence of a diversified portfolio.

One way to incorporate asymmetric risk is understanding investment seasons. Buy when everyone else is desperate to sell because that’s when you find the best bargains. Again, savvy, long-term investors know that seasons always change and that downturns in the market are usually temporary. What might look like a lost cause now can be acquired for a fraction of the cost that it’s ultimately worth. And, at some point, that stock or index fund will more than likely go back up. So take advantage of the stocks on the decline when learning how to diversify investments. Remember, no matter how cold the winter, there’s a springtime ahead.

computer keyboard

It’s all about finding ways to take small risks for big rewards. Swinging for the fences with no downside protection is a recipe for disaster. Learn how to incorporate asymmetric risk and reward into your diversified portfolio and not only will you adhere to the #1 rule of not losing money, you will be well on your way to creating a viable path toward financial freedom. Core principle #3: Tax efficiency

When you learn how to diversify your portfolio, you’ll see that it’s not all about the returns – it’s about what you get to keep in the end. Grappling with taxes might seem harder than creating diversified investments, but if your portfolio isn’t tax efficient, then you may not be keeping as much as you should be. In fact, you could be losing money.

As an investor focused on creating a diversified portfolio, there are three critical taxes that you must be aware of:

Standard income tax. This can be a big one. If you’re a high-income earner, your combined federal and state income taxes are likely nearing or exceeding 50%.
Long-term capital gains. If you hold your investment for longer than one year before you sell, then you will pay a long-term capital gains tax, which rings in at 20%.
Short-term capital gains. If you sell your investment before holding it for a minimum of one year, you will find yourself subject to the short-term capital gains tax. And right now, the rates are currently the same as standard income taxes. That means it’s usually more beneficial to hold onto your investments for longer than a year.

2-column-tax-efficiency

Between these three taxes, you can only imagine how much you could be paying Uncle Sam and how this cuts into your diversified investments. And if you understand the power of compounding, then you realize how a 50% tax bite as opposed to a 20% tax bite can mean the difference between achieving your financial goals a decade early or never achieving them at all.

So how do you structure your diversified portfolio to help reduce your tax bill and keep more of your earnings so you can compound your investments?

Defer taxes. Whenever possible, you must invest in ways that allow you to defer your taxes. Whether you invest in a 401(k), an IRA, an annuity or a defined benefit plan, deferring taxes means you can compound tax-free and pay tax only at the time you sell the investment.
Avoid short-term capital gains. If you do choose to sell any investment held outside of a tax-deferred account, such as an IRA, make sure, if at all possible, you hold it for at least one year and one day in order to qualify for the long-term capital gains rate.
Be aware of mutual funds. Mutual funds provide a certain level of portfolio diversification that is attractive to investors. But did you know that the vast majority of mutual funds do not hold on to their investments for an entire year? And you know what that means? Unless you are holding all of your mutual funds inside your 401(k), you’re typically paying ordinary income taxes on any gains. This means you could be paying as much as 35%, 45% or even 50% in income tax, which is taking a devastating hit on your compounding ability.
Consider index funds. Index funds do not constantly trade individual companies; instead, they typically hold a fixed basket of companies that charges only if the index that the fund tracks changes, which is actually quite rare. This means you get to invest in an index for the long run, which helps you avoid getting hit by taxes each year. Instead, you are deferring the taxes, since you haven’t sold anything, and your money can stay in the fund and compound without the tax “drag” on your returns.

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Have additional questions about taxes or how to create diversified investments? Consult a fiduciary or a tax strategist to help you better understand all the ways you can maximize the compounding process and create more net growth in your financial freedom fund. Remember, tax efficiency equals fast financial freedom, and could save you years or even decades of work. Core principle #4: Diversify! Diversify! Diversify!

Knowing where to park your money and how to divide it up is the single most important skill of a successful investor who is focused on diversified investments. Effective diversification not only reduces some of your financial risk, but it also offers you the opportunity to maximize your returns. That is to say, a diversified portfolio is a strong portfolio.

Wait, didn’t we already diversify between the Security Bucket and the Risk Bucket in principle #2? Yes! Now it’s time to take it one step further. Now you must diversify within those buckets so that you can structure a diversified portfolio for all seasons. If you keep all your assets in the same class, you’re not setting yourself up for success. How to diversify your portfolio

Here are the 4 ways you must diversify your portfolio:

Diversify between assets within different classes (real estate, stocks, bonds, commodities, private equity)
Diversify your holdings within asset classes (avoid concentrating putting all of your money into one stock or bond; you must diversify even within your asset classes)
Diversify globally (different markets, countries, currencies)
Diversify timelines (dollar-cost averaging, maturity date)

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how to create a diversified portfolio

A truly diversified portfolio should include securities from all of these six classes:

US stocks
US fixed income vehicles like savings bonds and money market funds
Foreign stocks to provide a hedge against the declining dollar
Commodities like oil, real estate and gold
Foreign fixed income including both corporate and government products
Equity in your home

Depending on how quickly you want to reach your financial goals, where you are in your life and your comfort with risk, you can use asset allocation to determine the exact mix of these six products and how they should comprise your diversified portfolio. Keep in mind any liquidity needs you may have before retirement and how each type of asset will be taxed or penalized if you need to withdraw money early. Working with a financial planner will help you create diversified investments that best fit your needs and plans for the future.

By allocating your money to such a diverse range of assets, you will be able to set yourself apart from 99% of all investors. And the best part? A diversified portfolio will provide the best of both worlds by decreasing your chances of risk and increasing your probability of return.

Want to learn more about a diversified portfolio and how to harness the power of the Core 4? Get all the details in Tony Robbins’ Unshakeable audio; unlock key secrets on how to create a diversified portfolio, make smart investing decisions and master your personal finances today.

What is financial freedom?

One financial freedom definition is having the monetary stability to do what you want in life without having to worry about your bank account. Financial freedom is being able to take that amazing trip to Tahiti without worrying about not coming into the office. It’s buying the house that your family dreams of and still having the funds to pursue your other interests.

Some people equate financial freedom with retirement, and while being free to retire when you want is important, financial freedom does not need to wait until then. Depending on your unique situation, financial freedom could mean having the means to pursue your passions and turn them into profit. It could mean not relying on a 9-to-5 job so you can spend time with your kids or support your partner while they work to build a business they love. Financial freedom means connecting to your deepest values and having enough money in the bank to support those values without having to worry about paying the bills.

What is financial freedom? Essentially, it’s the key to unlocking an extraordinary life.

Take steps toward financial freedom today with free tips from Unshakeable Financial freedom vs. financial independence

Many people use the terms financial freedom and financial independence interchangeably, but they don’t mean the same thing – and to truly work toward freedom, it’s important to know the difference. Financial independence hinges on the key word “independence.” It’s the ability to meet your own financial needs without relying on anyone else. When you’re financially independent, you have a steady source of income, pay all of your bills yourself (including any debts like student loans or a mortgage) and have some money in savings. You may even start investing. But you’re not yet financially free.

Financial independence is an essential first step to financial freedom, but it isn’t the end game. Financial freedom is a long-term plan to build the life of your dreams. As Tony Robbins says, “Success is doing what you want to do, when you want, where you want, with whom you want, as much as you want.” That’s also financial freedom. Is financial freedom possible?

For many people, true financial freedom seems like a far-fetched dream. Student loan debt is at an all-time high. The economy is unpredictable. Investing can be intimidating. We spend more time working and have poor work-life balance, yet make less money. What is the solution to all of these seemingly impossible obstacles? It’s to take responsibility and make the changes you desire.

Tony tells us, “Your income right now is a result of your standards; it is not the industry; it is not the economy.” It’s easy to blame the economy and resign yourself to the way things are. It’s much harder to raise your standards and work toward the life you want. But when you do, you’ll find that financial freedom is more realistic than you may think. 6 steps to financial freedom

Breaking down the steps to financial freedom via building a massive action plan (MAP) empowers you to connect emotionally to your goal and lay out the actionable steps needed to achieve it. Step 1: Determine your number

What is financial freedom to you and your family? One of the most important steps to financial freedom is thinking about your number or the amount of money required to help you become financially free. There’s no magic number for everyone. There’s a certain amount of money you could make that would enable you to live freely and pursue your passions. How much money is that?

Take into consideration normal living expenses, a cushion for unanticipated expenses and enough surplus so you won’t feel financial anxiety. Write down a number that makes sense to you, keeping in mind it might seem large. Now, do some analysis. How much are you currently earning? What do you need to do differently to make this amount of money?

how to gain financial freedom Step 2: Address limiting beliefs about money

Financial fear can affect anyone – even those who have plenty of money in the bank. To live the life of your dreams, you must address financial fear and the limiting beliefs that are behind it. Do you believe you’ll never be wealthy because no one in your family has ever experienced financial freedom? Do you think you’re not talented or smart enough to earn the money to be financially free? Once you have identified these beliefs, you can replace them with empowering beliefs like “I am an abundance maker” or “I am worthy of experiencing financial freedom.” Step 3: Get a handle on your finances

get a handle on your finances for financial freedom

Just because you believe you’re worthy of making the money you deserve doesn’t mean all your old financial problems will disappear. In this step, you need to take a good, hard look at your finances and see which messes need to be cleaned up. Do you have a lot of unsecured debt? Balances on credit cards with high interest rates? Are any of your accounts in collection?

If you owe money to others – especially if it comes with a high interest rate – a good chunk of your monthly income will be going to someone else. If you get a bonus or a raise, immediately use those funds to pay off your debt. Use the snowball method to pay off your smallest debt first, then use the money you would have put toward that debt to start paying down the next one. Once you’ve gotten out of debt and developed a budget, you’ll have more money each month and more peace of mind. Step 4: Create a short-term strategy for building savings

Achieving financial freedom will not happen overnight and you need to have a buffer to pay for the expensive surprises life can throw at you while you put your plan into action. Once you’ve gotten out of debt, you will have more money to budget each month and to put into savings. Once you’ve created a six-month emergency fund that can account for everything – from a sudden income loss to major medical issues – you can then put those extra dollars toward your money-making machine.

Having this emergency fund is practical and it’s necessary for your mental well-being. When you know you have a financial cushion, you can take more risks at work and say yes to those experiences that bring you true happiness without the fear or guilt that would otherwise accompany them.

couple learning financial freedom Step 5: Create the machine

developing a financial freedom plan

Now it’s time to find a way to make financial freedom a reality. Start by creating a money-making machine. You can do this by taking advantage of the power of compound interest. Divide your money into three imaginary buckets: security, risk/growth and dreams. Your security bucket is where all the money for your bills goes – you need this money to make your life function. Then, your risk/growth bucket is for things like high-yield bonds and stocks.

Lastly, your dream bucket is money that you can have fun with. When you receive a bonus or win a sum of money, it goes here. Many people taking steps to financial freedom find it helpful to work with a fiduciary who can give them information about investment options and help them develop the best strategy for their unique needs. Step 6: Evaluate and make changes

Pay attention as you work through the previous steps to financial freedom and make changes when necessary. Watch your portfolio for red flags that could be affecting your returns. Put more money into your buckets when you or your partner receives a raise or takes a new job with a hike in pay. Watch the market and diversify your investments as needed.

If you’re working with a fiduciary, evaluate how that relationship is going and make sure they are putting your interests first and that you feel comfortable with your relationship. If your broker is a bully or you don’t trust the advice they are giving you, you’re under no obligation to stay. A new financial advisor can open your eyes to new options or you may find that your financial intelligence has gotten to the point where you can handle investing on your own.

change

Remember that the question “What is financial freedom?” can be answered differently depending on your unique goals, values and standards of living. Knowing what financial freedom means to you will help you make your financial dreams a reality. By actively managing your finances and using the power of interest, you can one day achieve financial freedom. Financial freedom isn’t about being rich – it’s not about power or prestige – it’s about having the flexibility to make the most out of your life without relying on a job or paycheck.

Financial freedom is attainable, but you need to begin working toward it now.

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