I’ve been sitting here pondering what to write to you, and then inspiration struck me. Recently I have been running a series of videos that explains some of the elements of organising money to help make people feel calm and confident about it.
One element of the series included a discussion about the “Gap Tax”, and it was something I picked up from one of my business mentors Bernadette Doyle.
“The trouble with this tax, is that most business people go about their lives in blissful ignorance that they are even paying it. Because every day that passes without you living up to your potential is a day you’re paying the Gap Tax. Because that future potential is intangible and largely invisible to you, it’s easy to stay in denial and convince yourself you’re not really paying it”
Consumption Vs. Potential
The problem is, you don’t even see this potential when you’re handing over the money. If you could, would you still be spending on random stuff?
Think of it this way.
Take the cost of a coconut latte in Costa (one of my favs btw). I buy one nearly every week. It’s a habit, but I enjoy it. Over the course of a year, £3.10 a week amounts to £161.20 (assuming I buy one for every week of the year = 52 weeks).
£161.20 spent on coffee is lost. It makes costa richer, but doesn’t make me richer.
But what if I invested that money instead?
And what if that investment made me 4% in interest every year?
This is where the magic of compounding comes in.
Dubbed “the 8th wonder of the world” by Einstein, compounding is the secret ingredient to getting money to support you. Without it, life is an unhill struggle.
The reason why the rich “get richer”, is because they have learnt how to do this. And the more they learn, the more powerful their compounding efforts are.
So back to the £161.20 growing at 4% per year and no more money added in.
After 1 year, I would have £167.65
Year 2 – £174.35
Year 3 – £181.33
Year 4 – £188.59
Year 5 – £196.12
Year 6 – £203.97
Year 7 – £212.13
Year 8 – £220.61
Year 9 – £229.44
Year 10 – £238.62
So buying a latte every week for a year is nice, but it generates me nothing in return aside from helping me flush out my kidneys within about an hour of drinking one! But invested for 10 years, I could have made £77 just on this money alone.
THIS is the gap tax.
Release the potential
So while this is a very basic explanation, and £77 doesn’t sound like a lot, the point I’m making is this; if I had invested that coffee money instead of spending it, I could have made money WITHOUT needing to add in anything. I’m not the one doing all the hard work. Compounding does it for me.
Now add on a few zeros to that number – starting to look good now right?
The only way you can do this currently is by investing. 4% is a modest figure as well. Some investments out there are doing much better than this – the potential is HUGE!
But everyone needs to start somewhere, and for me, it’s stocks and shares investing.
And you don’t need much money at all to get started!!
So from now on, if I’m going to buy anything, I think about the gap tax and the potential that money could bring me, and it helps me to either figure out a way to spend less on the thing, or not buy it at all.
You can do this too
Investing is not there only for the enjoyment of the wealthy. ANYONE can get started. There are NUMEROUS strategies out there for investing, and I love teaching about one of them called index tracker investing.
In fact, this week, I have released a course to show you EXACTLY how to do it! I’ll be doing a “behind the scenes” walk through on Sunday 28th July at 11am so you can see for yourself what’s involved and ask any questions.
And even better – the first 6 people to buy will receive an hour long 1:1 coaching session with me to implement anything from the course, so you get some hand holding too to get it done.
But you will need to make a decision about whether you’re in or not soon – the doors close on sunday!
I hope you start to think about your money in terms of the potential it has. Compounding is money making money babies that make more money babies. You don’t notice the effect straight away, but boy do you notice it when it does!
I really want to help you see how money can be a useful tool, not just for what it can bring you now, but what it can do for you in many years to come. Can you imagine if you had learnt this when you were 18 or even younger? I can, and it annoys me every time I do! My children will certainly be shown how this works so they can be set up well for life.
Think about how investing could change your life. Don’t live a life of regret!
If you want to know more or get involoved, feel free to drop by into my FREE Facebook Group.
P.S. If you enjoyed this, why not try:
Learn how to invest! https://nikkiramskill.podia.com/investing