What would you do if you discovered that 95% of your paycheck was being flushed down the toilet? That happened to me about 6 years ago. That was the day that I discovered how expensive compound interest can be, and that was the day that I determined that I would learn how compound interest works and I would put money to work for me.
About a year earlier, I bought my first home, right at the max of the real estate boom. This was back in the days of sub-prime mortgages, and interest rates were double what they are today. About a year later, I was sitting at my new knotty alder kitchen table, paying the bills. I had a 1st and a 2nd mortgage on my home, 80/20, to avoid PMI. As I was going through the bills, I looked at the statement for the 2nd mortgage and I saw that I was paying $477 in interest, and only $17 in principal. Who would be crazy enough to pay 96% interest on a loan? Apparently, I was.
Here I was, a hot-shot MBA, business owner, homeowner, and I was paying 96% interest on my 2nd mortgage. My stomach literally dropped. I was sick. I remembered the well-known quote, often attributed to Albert Einstein or Benjamain Franklin, though neither actually said it.
Compound interest is the greatest mathematical discovery of all time. Those who understand the principal of compound interest are destined to collect it. Those who don’t are doomed to pay it.
I still clearly remember that day. Financially, that was probably the best day of my life. I don’t know if I made any money that day, but I realized that day that I never wanted to be doomed to paying compound interest again. I determined that I was going to understand the principal of compound interest better than anyone, and that was the embryo of Homes in Order.