Dreams, goals and aspirations are what motivate the everyday person. It could be becoming a lawyer, a professional athlete, the next hip-hop mogul or the CEO of your own company. No matter what your desire is, creating a blueprint and understanding what it takes to become successful is what can turn those dreams into reality.

Simply analyze successful entrepreneurs like Michael Jordan, Curtis "50 Cent" Jackson, Dr. Farrah Grey, Donald Trump or Russell Simmons. One thing they all have in common is how knowledgeable each is about the "money game".

Many people wonder how they can be wealthy. For most people this is challenging especially when they really don't know the rules of the "money game". By now many of you are asking what the "money game" is. The game refers to your daily interactions with money whether spending or earning it. Every day people play this game with no strategy for victory; some people are always without money while others are quite the opposite. Regardless of which end of the spectrum you find yourself, MC² is here to help.

In this installment, I am going to address how you can equip yourself with knowledge to seriously improve your financial life. Issues that everybody, especially young people, need to know about include: long term vs. short term investing, the different types of investment vehicles, interest rates, inflation, effective debt elimination, tax saving strategies, RRSPs and when to utilize the new Tax Free Savings Account (TFSA).

The infamous shoebox under the bed technique used by many of us today is a simple way to save for immediate needs, but if you are looking to have financial longevity then investing is the best choice. Investing is a crucial part of the money game and being knowledgeable about how to invest will surely get you ahead of the pack. When investing, people with a higher interest rate, will earn more money on the original deposit known as the principal. By becoming an investor you allow your money to work for you. However, and this is vital, you have to choose the proper investment vehicle to deter mine just how hard that money works.

I will let my readers in on a secret that is considered the quintessential rule of the "money game" amongst financial companies, insiders, and of course, the wealthy. Yet sadly enough, it is usually not shared outside of these circles. Perhaps the worst crime of all is that it is generally not taught in our school curriculum. That secret is called the "Rule of 72" and what it demonstrates is how interest rates work and the astounding effect compound interest has. Here's how it works: take your interest rate and divide it into 72. This shows how long it will take for your money to double. For example, if you invest $100 at 3% it will take 24 years for your money to double. If you were to invest at 6% it would take 12 years and for the money-savvy individual who is investing at 12% it will only take six years.

It is no wonder that Albert Einstein said, "Compound interest is the most powerful force in the universe." (This not only proves the significance of the Rule of 72, but also denotes how long its origin dates back, and especially, how long it has been kept shrouded from the middle class.) One last point on this rule, and this is equally important, is to realize that if you are not utilizing it to build wealth, then someone else is probably using it to take the wealth you have. For example, consider the interest you are paying your credit card company. Understand that that is how quickly your money is doubling for those companies and how the Rule of 72 can work against you. Think about it, if you have a standard 19% interest rate credit card, 72 divided by 19 means what you owe is doubling for the company every 3.7 years. Scary isn't it? Compound interest can be a powerful ally or a deadly foe.

A common mistake many people make when dealing with money is not factoring in the effects of inflation (also referred to as the increase in the cost of living) ... A dollar stashed under your mattress today will only be worth 29 cents 25 years from now due to inflation, which has averaged between 3 to 5% over the last decade. Using the rate of 3.1% with regards to investments, deducting inflation from your interest will provide you with your real rate of return. For example, if your investment earns 10% after deducting inflation your real rate of return is 6.9%.

Now here's the shocker, without the know-how, most people settle for an average of 2% on their investments, so what is the real rate once inflation is factored in? -1.1%!! (2% - 3.1%). This is why it is so crucial to not just invest, but to know where you are investing. Let's look at another way inflation affects us. You have just received a 2% pay raise from your boss. Happy times right? Not so fast. After factoring in inflation, you've actually been dealt a decrease in pay! As sly as that may sound, without correct financial knowledge this is the reality many of us young and old face today.

By now you may be telling yourself sure I want to invest, it only makes sense, but what are those investment vehicles mentioned earlier? Well first you must establish why you are investing, is it short term or long term, depending on your knowledge and experience should you be aggressive or more conservative, and most importantly, do you understand the power of compound interest? (Of course by now you do!)

If you think for the long term and want to start saving for retirement then a Registered Retirement Savings Plan (RRSP) is your best option. An RRSP is a vehicle that is regulated by the government that helps you to save and defer taxes. This gives you the power to grow interest without being taxed until you are ready to withdraw the funds. Remember though, where you invest your RRSP is just as important as having the RRSP in the first place.

For those who have short term goals like buying that new Acura TL or taking that dream vacation then RRSPs may not be a suitable match for your investment objectives. Perhaps the now available Tax Free Saving Accounts (TFSA) may be suitable.
 
If your current institution or advisor does not educate you on these essential investing factors, then find someone who will, with the credentials to not only properly service you, but also comprehend what your financial goals and dreams are.

My next column will be about how you can own and design your life through entrepreneurialism. It's something you will not want to miss.

Tip: By now enhancing your financial knowledge and getting your finances in order must be a priority. Therefore, to help you streamline I recommend getting a comprehensive financial plan. Contact me for resources on how to get a professional, complimentary plan done and on how you can attend the phenomenal Money Minds & Common Cents financial literacy workshop.

Words By: Newton Asare II: mc2@live.ca