As a kid, I was a master saver, but I was more of a hide-it-under-your-mattress money hoarder. I now know this is a surefire way to deplete money’s buying power through inflation, but as a young kid I had no idea. At age 7, I tried my luck at money lending to my step-siblings. That didn’t go too well, since I didn’t have debt collectors at my disposal, and they had a hard time taking their youngest sibling seriously. (They still owe me $20, and I am currently charging them interest, so my investment has multiplied 50-fold…now how to collect?).

Growing up my parents paid us for chores done around the house. When we received the money (usually $1 per chore) we were shocked to discover that we only received 33 cents for every dollar. “Taxes and Social Security,” my mom told us..

In college, my mom gave me a small stipend to live on because she wanted me to focus on my studies instead of getting a part-time job. I saved almost all of it. Every year she’d ask if I needed more money, and I’d tell her how much I had left (about 90 percent), and she’d accuse me of not living and being a miser (this was surprising, coming from her). I was content and didn’t feel the need to spend more money.

 

The big awakening: compound interest  

Then real life began. I graduated college and accidentally learned about the power of investing while living in one of the most expensive cities in the world: New York City. I started my first job and took the much less than ideal advice from my parent’s financial planner about which fund I should choose for my 401K. I set my contribution limit and ignored it.

A few years later I was considering rolling over my 401K to my new company and discovered something shocking: despite my relatively low contribution amount, no company match, and a mediocre fund, I had almost $30,000 in my 401K. That was more than I had in the bank. More than I could have dreamed my net worth would be. I was dumbfounded. I didn’t understand how this could have happened when I just set aside money and forgot about it.  Suddenly, the world of compound interest fascinated me, and I voraciously started reading everything I could find about investing.

 

But real quick, compound interest is…?

It is believed Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

Basically, you put $100 into an investment (they call this your principle). That investment makes 5 percent interest over a period of time (three months, for example), so now you have $105.  In the next period, you make 5 percent on the $105 (instead of just $100), and that just keeps occuring. Thus, your money compounds on itself and you magically build a fortune by doing nothing. This is also how banks charge you interest on the balance on your credit cards–and that compounds pretty dang quickly (less magical).

Making money in my sleep

I soon discovered that investing in low-cost index funds was even more powerful than I imagined. If I used my money to  take care of life necessities and then invest in some stocks, that money would start to pay me. After some time, my investments could earn more money than I could in the working world. I would literally make money in my sleep. And that was a very seductive prospect.

So, I started working toward the goal of creating passive income. I made a plan and a budget, and cut any spending that wasn’t bringing me joy. I changed my phone plan, learned how to hack free flights and drank less at bars, while increasing my number of  house parties (it was the financially responsible thing to do). Every extra dollar saved went into my investments.

The next year I channeled my inner Emeril Lagasse and kicked it up a notch. My partner and I decided we were sick of paying almost $3,000 a month for a 400-square-foot studio, with 200-square feet of usable space.  So, we decided to move to the opposite side of the  country to Seattle without a job, apartment, friends or family. I was only able to do this because of my serious savings (and savvy skillset).

 

Nav.it yourself

I had zero understanding of investments when I left college, so don’t let inexperience scare you away. I accidentally discovered the magic of compound interest and smart investing and that took me down a road to full ownership of my wealth. I manage my own money. I am planning on retiring early. I am free to choose the job I want because I always have a backup, and I see my money as a tool to create the lifestyle that is right for me.  You have everything it takes to do that, too. You just have to believe you can and get started now.