Knowing that my wealthy friend would expect me to look the part I bought the snazziest pair of tweed pants, bright shirt and beret with a pom pom on it that I could find.  I wasn’t quite sure whether I looked like a pro or a pimp, and as I walked through the grand clubhouse that only a $65,000 per person a year membership fee club can afford I was starting to realise that it was more pimp than pro.

Turns out I needn’t have bothered – I wasn’t actually invited to play golf, I was just going to caddy.  And no golf buggy on these close cut greens, we had to walk!  Golf wasn’t as glamorous as I thought it was going to be.

Martin was quietly spoken, very focused and seemed to be good at golf.  I got the impression he was good at most things.

My Wealthy Friend approached the tee, selected a club from the bag I carried around, agreed with Martin on a number for his ball and stepped up to the tee.

Just as he setting up his ball he turned to Martin and said, “Same betting as usual?”

“Of course said Martin,” with a smile.

I turned to Martin’s caddy for an explanation.  “Every time they play they bet a dollar for the first hole.  The bet doubles for every hole they play.”

“How many holes are there?” I asked, discovering the answer to be 18.  “That doesn’t seem to be much, just $36 dollars – I thought Martin was wealthy?”

“Oh he’s well of, but I think you’ll find it’s a fair bit more than $36,” said the caddy with a smirk.

Well, I wasn’t in the mood to be doing maths so I didn’t bother working it out, and at first it didn’t seem like much.  I really didn’t catch on how much was at stake until it started racking up but I soon got out my score card and did the maths:

 

     
Hole Bet Cumulative
1 $1.00
2 $2.00 $3.00
3 $4.00 $7.00
4 $8.00 $15.00
5 $16.00 $31.00
6 $32.00 $63.00
7 $64.00 $127.00
8 $128.00 $255.00
9 $256.00 $511.00
10 $512.00 $1,023.00
11 $1,024.00 $2,047.00
12 $2,048.00 $4,095.00
13 $4,096.00 $8,191.00
14 $8,192.00 $16,383.00
15 $16,384.00 $32,767.00
16 $32,768.00 $65,535.00
17 $65,536.00 $131,071.00
18 $131,072.00 $262,143.00

 

All of a sudden I realised why Martin and my wealthy friend were taking each shot so seriously.  By the 18th hole they would be playing for over a quarter of a million dollars!

I couldn’t believe how rapidly the amount escalated starting with just one dollar and only 18 holes.

Both took great care in their selection of clubs.  Martin would frequently stop and discuss tactics with his caddy and I was worried I might be more of a liability to my wealthy friend than the obvious help Martin’s caddy was.

Every now and again one would ‘fluff’ a shot but the game remained very civil.  It seemed pretty evenly matched until we reached the very last hole.

We were on the 18th hole and it they were playing for more than I earnt in a year!  Was this my lesson – become a golfer?

My Wealthy Friend was trailing by 2 shots and we were already on the green when he said, “Can I make it a bit more interesting Martin?”

“Why not,” he replied, obviously happy with what look to me like an unassailable lead.

“Seems my caddy has a question he’d like to ask you.  If I win, he gets to ask it, if you win, double or nothing!”

Now THAT, I wasn’t expecting.  I had no idea of what I was supposed to ask.

“I knew you had something up your sleeve,” said Martin to my wealthy friend, “Not another one of your ‘students’ with their questions.  I can’t get away from it anywhere!”

“Oh come on Martin, doesn’t seem much effort for half a mil.  I know you earn a bit but surely your billing rate’s not THAT high?”

“OK, what do I care?” said Martin in a tone of voice that said he very much cared as he fluffed his first put.

Second put was no better and they were even.  The third put got right on the edge of the hole and rolled around it but failed to fall in.  That meant my wealthy friend had just had to sink his put in one and I would get my question.  If he didn’t he’d lose over $500,000!

I was so nervous I was sweating and my wealthy friend’s ball was right on the edge of the green.

All was silent.  A couple of other golfers stopped on their way to the club house to watch sensing something important was about to happen.

I could hear the gentle wack as club hit ball and it rolled slowly towards the hole.  It ellipsed the cup and for a second or two looked like it might go the way of Martin’s effort and not fall in but, after what seemed like an eternity, it finally fell in with a satisfying plop.

“YES!” yelled my Wealthy Friend punching the air in the only loss of decorum I had ever seen in him.

Martin just said something under his breath in a language I didn’t know.

“My shout for the chocolate milks,” said my wealthy friend handing me his putter and saying, “Meet you in the club house.”

When I arrived in the club house there were in actual fact drinking chocolate milk.

I was still dumbfounded that my wealthy friend had given up over half a million dollars just so I could ask a question.

When I arrived at the table they were in an animated conversation about the gold price.  My wealthy friend as saying he preferred bullion whereas Martin was saying he preferred gold stocks.

“Martin is quite an expert on gold,” my wealthy friend said by way of explanation, “As you probably guessed by his accent he is from South Africa.  When he first came to Australia they were escaping from the deteriorating situation there and came with only a few possessions and a bit of gold.  He left behind a very successful business and started here with nothing.”

I was impressed.  “I hope I do as well as you,” I said.

“What do you mean?” asked Martin seemingly genuinely surprised.

“Well, I started with nothing too, and I sure hope that one day I can afford to bet half a million on a put!”

My wealthy friend and Martin shared a conspiratorial look at each other and just laughed.

“The bet was to illustrate to you the power of compounding Peter,” said Martin, “Our friend tells me you are trying to get rich quick.  But when I was first a student of his he taught me that it was far better, easier and safer to get rich slow.  By investing a small amount and reinvesting the proceeds you can easily see how quickly it can grow now that you saw how our betting worked.  We started out with just a dollar.  Before we finished the first nine holes the betting was up to $511 – a big bet but nothing compared to what was to come.  By the time we got to the club house the last bet was $262,143 and our friend here made it more interesting by throwing in his usually double or nothing ploy.   Most people don’t have the patience and get bored at the $500 mark.  They can’t see how they can possibly make a fortune by just letting their investment compound so they give up.

You see, we are taught by the media and society that somehow there is some secret that we can learnt that will shower us in riches overnight.  Well that’s only partly true.  There is a secret, it’s called the magic of compounding and it will shower you in riches if you are prepared to let it do its work.

Did you know that if you invested $10,000 today and were able to get 10% interest every year and just reinvested that interest every year at the end of 20 years it would be worth $67,000?  If you were able to add just $1,000 per year in the same time frame it would be worth $124,550, and if you were able to add $10,000 per year in 20 years you would have $640,000.

In 30 years that same $10,000 would be worth $174,494 with just the interest and $1,819,434 if you added $10,000 a year.

That’s the magic of compounding.

Let’s look at what would happen if we started with $10,000 and were able to add an extra $10,000 at the end of every year:

 

Year  5% 10% 15% 20%
1  $      10,500  $     11,000  $     11,500  $      12,000
2  $      21,025  $     22,100  $     23,225  $      24,400
3  $      32,076  $     34,310  $     36,709  $      39,280
4  $      43,680  $     47,741  $     52,215  $      57,136
5  $      55,864  $     62,515  $     70,047  $      78,563
6  $      68,657  $     78,767  $     90,554  $     104,276
7  $      82,090  $     96,643  $   114,138  $     135,131
8  $      96,195  $   116,308  $   141,258  $     172,157
9  $     111,004  $   137,938  $   172,447  $     216,589
10  $     126,555  $   161,732  $   208,314  $     269,906
11  $     142,882  $   187,905  $   249,561  $     333,888
12  $     160,026  $   216,696  $   296,995  $     410,665
13  $     178,028  $   248,366  $   351,545  $     502,798
14  $     196,929  $   283,202  $   414,276  $     613,358
15  $     216,776  $   321,522  $   486,418  $     746,029
16  $     237,614  $   363,675  $   569,380  $     905,235
17  $     259,495  $   410,042  $   664,787  $  1,096,282
18  $     282,470  $   461,046  $   774,505  $  1,325,539
19  $     306,593  $   517,151  $   900,681  $  1,600,647
20  $     331,923  $   578,866  $1,045,783  $  1,930,776
21  $     358,519  $   646,752  $1,212,651  $  2,326,931
22  $     386,445  $   721,428  $1,404,549  $  2,802,317
23  $     415,767  $   803,571  $1,625,231  $  3,372,781
24  $     446,556  $   893,928  $1,879,016  $  4,057,337
25  $     478,884  $   993,320  $2,170,868  $  4,878,805
26  $     512,828  $1,102,652  $2,506,498  $  5,864,565
27  $     548,469  $1,222,918  $2,892,473  $  7,047,479
28  $     585,893  $1,355,209  $3,336,344  $  8,466,974
29  $     625,187  $1,500,730  $3,846,795  $10,170,369
30  $     666,447  $1,660,803  $4,433,815  $12,214,443

 

 

Even if you are getting only 5% interest per year it only takes 20 years before the interest you receive on your investment is more than you originally put in.

At 10% PA it only takes 8 years.

At 15% PA it only takes 5 years.

And at 20% it takes just 4 years before you are earning more in interest each year than you are putting in.

This is the power of compounding.

And this is how wealthy people get wealthier every year.”

I was suitably impressed as I figured that I could do far better than just putting in $10,000 per year.

I was now a convert to the “get rich slow brigade”.

As I was packing up the car Martin’s caddy came up to me and asked, “Did you enjoy the game?”

“I’m not sure that ‘enjoy’ is the right word for it, I spent the last few holes practically wetting myself I was so nervous.  I’m still gob smacked.”

“What’s up?”

“My goodness man, didn’t you see what was on the line?” I exclaimed, “Half a million on the line over a stupid game of golf!”

“Don’t be silly man, they never settle up.  They’ve got a tab on the go ever since they started playing together.  It’s in the billions now.  It’s just a running joke!”

I didn’t know whether to be relieved or angry!

 

———————————————————————————————————————————————————————–

Extracted from “From Broke to Multi-Millionaire in Just 7 Years” by Peter Spann

Harper Collins Publishers – 2001, 2004

Peter Spann is a business coach, writer, presenter and investor.

His goal is to help people make their dreams come true.

Click Here  to learn about my business services.

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