The ESIR Mindset. What is more important for you? Financial Independence or Displaying Status?
The ESIR mindset is all about growing financially secure. It is actually quite easy, but we are constantly sabotaging ourselves with our mind working against our goals. Since we where children we have been programmed by the media that we have to spend money and buy things just to look good in front of other people, and most of time this works a short term relief of our daily frustrations when in reality it only serves the purpose of big corporations and undermines our future.
What does ESIR mean? It means Earn, Save, Invest & Repeat. Why ESIR? Well, this is the formula that the rich follow to get richer and why the poor stay poor by not following these rules.
If you spend what you earn, you will never grow wealthy. If you spend less than you earn, you will be able to save, but still not get wealthy. If you invest what you save it will generate profits, more earnings and if you keep spending less then your earnings and profits and keep the wheels turning in this direction, investing more and spending less you will be able to increase your profits over time and reach financial security.
Let’s consider the following example where we will use as reference a 2% per month return, or 26% annual return based on our past performance.
If you have a 100$ phone plan you might be looking at it as “just 100$ every month”. But in fact 100$ a month is 1.200$ a year and if you “ESIR” it instead, it could grow into 50.000$ in 10 years. Yes, the magical effect of compound interests and average investing over a longer time frame really works.
In 10 years you could be earning 1.000$ every month, just by investing 100$ every single month for the next 10 years. When we spend money in services or things we don’t need we stop looking at it as a profit or loss. It’s gone, end of story. But when investing we see the numbers and our brain starts working against us. We are not able to compound growth without sabotaging ourselves, we start dreaming about that new car, that nice watch, the new notebook we fancy, that brand new iphone. Advertisers spend millions hiring psychology experts just to make you think you want to buy something you don’t need.
This is how the profits from 100$ invested every month would grow over the 10 years if we would manage to not touch it and let everything compound.
The first year it is not even making 25$ every month, but the second year it would be reaching a possible 60$ return per month and the third year 100$ a month. It would keep climbing up to 1.000$ in 10 years with a Net Capital value of 50.000$ in your account. Remember 2% per month of the 50k would now make 1.000$, and it only started with 100$. You can save and cut a lot of your spendings, scale down your phone plan, your tv plan, it can be something as big as scaling down your car or home or as small as giving up on your daily cappuccino/frappuccino that takes 5$ from your wallet every day. 5$ every day is 25$ per week and that is 100$ in a month, remember its not one cappuccino a day, but less 50k in 10 years, or less 1k profits per month in 10years. If you don’t know where and how you are spending your money you will never be able to grow your wealth. BUDGET, check this article!
As you can see, not following the ESIR rules is basically sabotaging our future selves. Our mind is constantly working against ourselves and many try to outsmart simple and effective rules and tweak them. Lets use a real life example. John is an investor that started looking into the ESIR mindset and many things started to make sense to him, but somehow he believed that he would be outsmarting this process by taking out the monthly profits at the end of every month. Once more our brain and our short term rewards, the way we are programed to think and behave are destroying the magical formula where you mix and combine average investing with compound growth. This pattern happens with most of men and women, we are not able to think long term, we have no clue about how we can multiply money just with time and compounding. We live in the present and on the very short term, no time to think about investing when we can buy now and show our new toys and stuff around tomorrow to all our friends and family.
Taking out profits is basically disabling the compounding effect, there are no interests or profits left to earn new profits or interests on those previously made profits. We are only generating profits from the direct investment and will no longer experience exponential growth over time.
After 10 years our Net Capital would be around 12.000$ instead of 50.000$. John would be taking out profits every month and they would still gradually grow et each new month. His total withdrawals would sum up to 15.200$ during the 10years time span. Check the evolution of the profits he would have withdraw every month.
The difference is staggering when we look at both examples, specially athe future profits potential at year 10 and onward.
John’s strategy to take out profits on a monthly basis has reduced the monthly profits at year 10 to 240$ per month, while leaving all profits waiting and compounding would be reaching 1.000$ per month.
100$ per month is just a start and 10 years is only a smaller period of time where the ESIR rules can increase even further your Investment. If you are looking for the million it is achievable investing 400$ every month for 200 months.
What really matters is your mindset, stop sabotaging yourself, stop spending what you could be saving, 100$ today in a single investment can be compounded up to 1.000$ in 10 years and up to 10.000$ in 20 years. Doing this twelve times only for one year, saving 100$x12 would be 12.000$ in 10 years and 120.000$ in twenty years. Earn, Save, Invest & Repeat.
Most part of self made Millionaires, especially before they became rich, where extremely frugal. They managed to live on something like 10% of their income. Everything they bought, house, cars, doesn’t surpass 10%.
Stop telling yourself you can’t apply this to you! It’s all in the proportions. Same as making money, don’t focus on the dollars, focus on the percentages, the relation, you can scale it if you follow the rules.
For example, if you’re a student living on 50k a year, you hardly can get your own place. Instead you should rent or live with your parents and your car shouldn’t exceed 5.000$.
Doing any differently means you care too much about how you look and the image you show. The hidden truth! Why the wealth of 99% of the population is the same as the wealth of the top 1% of the population, have a read here.
What is more important for you? Financial Independence or Displaying Status?
Improve your budget, reduce your spendings, increase your earnings, invest to generate future profits, compound and repeat with diversification. Results will come over time, we focus to much on short term results and don’t change any of our behavior now. Now is the time for change and to start changing our future.
Are you an ESIR Investor? Join the ESIR community in this journey, https://www.esirinvestors.com/