You have probably been taught that the responsible way to handle your economic affairs was to work hard, be thrifty and invest safely. This is what the old timers did, and it worked for them. When they reached 65, they were able to retire
However, the old timers lived in a country on the gold standard. They went to work at age 16, saved 15% of their income each year and put it in the local savings bank at 5% interest per year. Let us do a little 8th grade math.
Assume an average wage of 30 oz. of gold per year. Saving 15% of that means saving 4½ oz. per year. At the end of a 49-year working lifetime, you have saved 220½ oz. of gold.
Now listen closely because what happens next is so astonishing that it was called a miracle: the miracle of compound interest. When you lend money at interest, in the first year you get the agreed upon rate. If you lend $100 at 5%, you get $5.00. It is in the second year, that the miracle starts. In the second year, you don’t merely get another $5.00. In the second year, you are not lending $100; rather you are lending $105, and at 5% this produces an interest of $5.25.; so at the end of the 2nd year you have $110.25. This is interesting. Not only is your capital growing; it is growing at an increasing rate.
Now to calculate what 5% interest does to your capital over a 49-year working life span is a long, difficult problem in 8th grade math. But I was a bad boy one day and had to stay after school, and so I calculated what 5% interest does to capital over a 49-year period.
The answer, to cut to the point, is that it multiplies it by 4.25. So, the man who saves 220½ oz. of gold will, after 49 years at interest at 5%, have 220.5 x 4.25 = 937 oz. of gold. That is, you saved 220½, but you have 937. This so impressed the people of the 19th century that they called it the miracle of compound interest.
So here you are at age 65 with 937 ounces of gold in the savings bank. You can stop working, continue to draw interest on your capital, and you will receive 5% x 937 oz. = just shy of 48 oz. of gold per year. In other words, you can stop working and receive 50% greater salary than you did when you worked.
This was a wonderful system. It no longer exists, but it is very important if you want to know what to do with your wealth today and how to survive in the modern economic climate.
Au really! 8O
Canadian Dollar -0.09% 0.7925
Gold +12.11 $1169.44CDN
However, the old timers lived in a country on the gold standard. They went to work at age 16, saved 15% of their income each year and put it in the local savings bank at 5% interest per year. Let us do a little 8th grade math.
Assume an average wage of 30 oz. of gold per year. Saving 15% of that means saving 4½ oz. per year. At the end of a 49-year working lifetime, you have saved 220½ oz. of gold.
Now listen closely because what happens next is so astonishing that it was called a miracle: the miracle of compound interest. When you lend money at interest, in the first year you get the agreed upon rate. If you lend $100 at 5%, you get $5.00. It is in the second year, that the miracle starts. In the second year, you don’t merely get another $5.00. In the second year, you are not lending $100; rather you are lending $105, and at 5% this produces an interest of $5.25.; so at the end of the 2nd year you have $110.25. This is interesting. Not only is your capital growing; it is growing at an increasing rate.
Now to calculate what 5% interest does to your capital over a 49-year working life span is a long, difficult problem in 8th grade math. But I was a bad boy one day and had to stay after school, and so I calculated what 5% interest does to capital over a 49-year period.
The answer, to cut to the point, is that it multiplies it by 4.25. So, the man who saves 220½ oz. of gold will, after 49 years at interest at 5%, have 220.5 x 4.25 = 937 oz. of gold. That is, you saved 220½, but you have 937. This so impressed the people of the 19th century that they called it the miracle of compound interest.
So here you are at age 65 with 937 ounces of gold in the savings bank. You can stop working, continue to draw interest on your capital, and you will receive 5% x 937 oz. = just shy of 48 oz. of gold per year. In other words, you can stop working and receive 50% greater salary than you did when you worked.
This was a wonderful system. It no longer exists, but it is very important if you want to know what to do with your wealth today and how to survive in the modern economic climate.
Au really! 8O
Canadian Dollar -0.09% 0.7925
Gold +12.11 $1169.44CDN
