The Snowball

The Snowball by Alice Schroeder is one of the best biographical primers on saving and investing that I have ever read. The book describes the life and times of Warren Buffett one of the richest men in the United States. The title describes his technique for becoming wealthy.

The concept is that you take a little snow and a very long hill, and roll that little snowball until it becomes a gigantic snowball at the end of a very long hill.

What does that mean?

In finance, the term is called compounding. To compound your money is to make it grow through interest. The classic example is that of a savings account. You start with $10.00 and the bank, for example, may give you interest at 2% for the year. So, for every year that passes, the bank, in our example, will give you 20 cents.

The idea is to get the highest interest rate for as long as you can.

This is how the richest man in the United States says he got rich. COMPOUNDING is critical. Debt is compounding working in reverse and makes the bank rich. Getting out of debt allows you to begin to save and saving is the first part to investing.

A lot of people out there would like to make this complicated and it really is not. Making a lot of money is not compounding. If I gave you $100,000 in cash how much of it would you have after 20 years? 15 years? Or even 10 years? How would you compound it to get the highest interest rate? Check out the book and see how Warren did it.