Let's debunk the compound interest lie

that is echoed by so many financial

gurus and advisers, [music]

and then we'll talk about the better way

to get ahead in life, both in terms of

financial success and in terms of

personal fulfillment. Now, you've seen

the graphs, you've heard the math, it's

said that if all you do is set aside a

modest amount of savings over a long

enough period of time, then you can be

rich. You can have life-changing wealth.

And a very common example of this is you

set aside $10 a day or about $300 a

month over 40 years where every year

that grows 8% and you'll end up having a

million dollars. I think I was in my

early teens when I first heard about

this concept and the sheer number of

people out there that talk about this

and promote this idea and kind of make

this promise is staggering. And really,

when you simplify it down, the promise

that is being made is that modest

savings multiplied by time equals

life-changing wealth. Now again, we're

going to talk about a much better

solution here in a minute, but first

let's talk about what's wrong with this

equation. What's wrong with this

promise? And the problem is very simple.

The magical power of compound interest

is watered down by the nearly as

powerful effect of compound inflation.

So yes, if you set aside $10 a day or

$300 a month over 40 years and it grows

8% annually, you will have a million

dollars, but here's the kicker. It's

going to spend like about $330,000.

You'll have a million dollars, but

[music] in terms of what you'll actually

be able to buy with it, it'll be about

the equivalent of what you could buy

today for $330,000.

[music]

Let's dive into the math really quickly

just so you understand exactly what's

going on here. Okay, we're setting aside

$300 a month with an 8% annual interest

rate over 40 years. I'm not factoring in

taxes at all here, so of course that

would further have implications for how

much money you could actually spend, but

we're looking at an expected average

annual inflation rate of 2.84% I

basically took the first 40 years of my

life. This is a number that depending on

exactly which 40 years you choose goes

up slightly or goes down slightly. I

think it's fair to say inflation seems

to be going upwards into the future. So,

I think this is a very conservative

number. So, you'll have invested

$144,000

over the 40 years. And here's this

incredible number. Over the 40 years,

your interest earned is an incredible

800 and nearly 64,000

dollars giving you a total gross value

of over 1 million dollars. That is the

big impressive number. But, when we

actually look at future value accounting

for inflation,

that is going to be about a little under

$330,000

in terms of today's dollar and the what

you can buy with that money today.

And so, your $144,000

will grow to include an additional

$185,000

call it, and you'll have this

approximately $330,000

in terms of today's purchasing power.

Yes, you'll have a million dollars, but

that's just a number. It might as well

be a different currency because it's

going to spend like it is $330,000.

Now, what I find most stark here is the

huge gap between what is promised

[music] and what actually happens in

reality. So, there you have this big

promise of compound interest is going to

earn you $864,000,

but in reality, it's only going to

increase your purchasing power by about

$185,000.

And so, the power of compound inflation

actually waters down the promise and

what you actually are going to get by

about 78%.

Rather than having this huge number in

growth, you end up with a much more

modest number. And so, the reality is

this is simply not a way to create

life-changing wealth. It is a way to

have your money grow, but this is not

going to create a situation where you're

suddenly rich after spending half of

your life setting aside money. Now, I

want to be very clear before we get to

the better way to actually improve your

life, there's nothing wrong with saving

and investing money. Virtually everybody

that I know who is successful [music]

saves money, they spend less than they

earn, they set aside that money in

investments, and they have it modestly

grow over time. The difference here is

this is not a silver bullet. This is not

a way to get rich. Instead, this is

about preserving and modestly growing

your money over time. So, you should

absolutely be investing, but do not

think of this as a way that is going to

magically unlock future wealth. The

better way to create a brighter future

for yourself, both in terms of financial

success and personal fulfillment, is to

obsess about developing and applying

uniquely valuable skills. In other

words, to get better and better at

things that are truly useful. And

ideally, get better and better at

collaborating with other people so that

you can create more value in the world.

Now, you can do this as an employee

where you're working for an organization

and you're developing more and more

valuable skills so they pay you more and

more money for what you bring to the

table. Or of course, you can do this as

an entrepreneur or business owner where

you're creating better products and

services and selling them directly to

customers and you're finding ways to

create more and more value because of

the unique things that you do

exceptionally well. But in either case,

the overarching principle here

is you want to find ways to create more

value so you can improve your earning

power. So that over time, you're not

only keeping up with inflation, which

unfortunately a lot of people, yeah,

they're getting modest wage increases

from year to year. They get the

psychological reward of earning a little

bit more money, but then they go to the

store and their money goes,

you know, doesn't go as far as it used

to. And so they earn more, but they

spend more and they never get ahead. The

idea here is you want to develop truly

useful skills so you can dramatically

increase your earning power and you can

earn far more than you need and thus you

can set aside money, you can have it

modestly grow over time. And as a really

nice bonus here, when you're doing truly

useful work, when you're developing cool

and valuable skills, you tend to be more

fulfilled in life with what you're doing

and the impact that you're having. So,

not only are you better off financially,

but you're also enjoying the journey

more. You're enjoying the impact and

you're enjoying developing and applying

unique skills. Now, when it comes time

to actually do this and how do you

actually go about doing this? Well, I'm

not here to sell you a course. This

might feel like a big build-up to some

big course. I'm not here to sell you on

anything because the fact is

it's never [snorts] been easier or

cheaper to just figure this stuff out on

your own. In fact, right now, you in

this moment, you could go to ChatGPT and

simply ask, "What skills or careers are

likely to be valuable in the future?

Which of those options are most

promising if my hobbies and interests

include X, Y, and Z? What is a good way

to start developing related skills in a

practical way? Is there a job I could

start today that would help me develop

one or more of those skills while

earning money?" It all starts with

curiosity and a willingness to explore

options. And if you're looking for

timeless insights to guide you along the

way, then click the like button,

subscribe to the channel, and [music]

stay tuned for future videos.