I recently became interested in learning more about compound interest. I had read something about how Bill Gates has so much money that he earns over $100/second, making the act of picking up a $100 bill off the ground technically a bad investment of his time (i'm still trying to make sense of that logic).
But $100 a second? That's $6,000/minute. $360,000/hour. $8,640,000/day. $3.15 BILLION/year! That's not money he is making for working. That's compound interest earned on just having a lot of money. And good for him, ya know? I'm not hating on him for being wealthy. But those numbers are outside the realm of reality as I know it.
It got me thinking about how simply borrowing a shit-ton of money could change someone's life. Interest-free, of course. And therein lies the problem. Borrowing a shit-ton of money without paying interest on it is in essence receiving free money in the form of interest. No one is going to lend you money without interest, because no one is going to just give you free money... right?
Everything beyond this point requires that 6% ROI that is used in the above example. I realize that the market goes up and down, so you can't lock in amazing returns. But just go with it...
What if I asked you to give me 16¢? That entails me borrowing $2.63 from you for one year, interest-free, and you missing out on 16¢ of interest. You wouldn't benefit in any way, but so what? It's 16¢... no big deal. Sure, why not? Right? I'll come back to this later.
So it's very possible I could be wrong on these calculations, but check this out:
Let's say Mr Gates lent me $19,811,321 (interest free) for a year, I'd earn about one million dollars in interest. If he was nice enough to lend it to me for 13 years, with compound interest I would have earned $22,444,805, after paying Bill back. With that money, I could keep $2.6 million, and give that same loan of $19,811,321 to someone else. The interest I would keep collecting on the $2.6 million would be about $156,000/year to live on for the rest of my life. And then after 13 years, I get my $19.8 million loan back, and I can loan it out again to someone else. So every 13 years my estate creates this opportunity for someone else, and every 13 years their estates do the same.
Let's say Bill likes the idea too, so he also does the loan to someone new EVERY year. How fast would that spread? I'm sure there is a simple math equation for it, but basically you start with ONE REALLY RICH FAMILY, and then every 13 years (forever) they make a different family really rich, and every 13 years (forever) those families make more really rich families.
So now imagine for a moment that we don't bother Mr Gates about this. His time is so valuable, I wouldn't be able to afford more than a few seconds of it, anyway. So from every working person paying income taxes in the USA (124.73 million people) let's say we all had $2.67 withheld from us, and then GOT IT BACK on our tax returns... 124.73 million x $2.67 = $333 million. Collect 6% interest from that, then pay everyone back. Now you have ~$20 million to start the process. No need for Bill Gates. You would just need enough voters to agree that it's worth 16¢ of their interest (nothing out of pocket) to roll a boulder down a hill that would continuously crush poverty.
And regarding that unstable rate of return: The idea is the transactions wouldn't necessarily occur annually. They would occur as often as needed to hit the amounts. So when the markets up, payouts would be faster. Down, slower.
Hi, i'm John(ny). I'm a middle-aged(?) husband and dad. I have a video/photo business that fills in all the gaps.