I could begin by telling you about an incredible formulae and how it has the possibility of changing your financial life, and I really mean that, and I will, but before I do, I want to tell you first about a women called Oseola McCarty because her and this formulae are directly related.

I was reading about her life recently and it was fascinating. What an inspirational and incredible person she was.

She was born in Mississippi in 1908, and conceived following the rape of her Mother. She grew up in a town called Hattiesburg and was raised by her Grandmother and Aunt.  The three of them were incredibly close and when her Aunt took ill and couldn’t work anymore, Oseloa quit school (she was in 6^th grade at the time) and began working full time as a washerwoman.

From a very early age, she was working. When she was in school, she would return home and iron clothes, and whatever money she earned from doing that, she would put into her doll buggy.

And she was paid pittance but don’t feel sorry for her, because she loved to work. “Hard work gives your life meaning,” she said. “Everyone needs to work hard at somethin’ to feel good about themselves, and if you want to feel proud of yourself, you’ve got to do things you can be proud of.”

What an incredible work ethic she had, and something we should all remind ourselves of, when we start our working day.

She could have felt bitter at the hand she was dealt, I mean she was scrubbing and washing clothes by hand from dawn till dusk and earning very little. She had to leave school to work and help her Aunt, but did she complain? Absolutely not.

This is what she said, “Some people make a lot of noise about what’s wrong with the world, and they are usually blamin’ somebody else. I think people who don’t like the way things are need to look at themselves first and change their own ways…………if everybody did that, we’d be all right.”

What was incredible about Oseola was this.

When she retired in 1995, the pennies she earned and saved over her working life had amounted to $280,000.

And guess what she did next?

She gave it all away.

She first donated $150,000 to the University of Southern Mississippi to fund scholarships for students who couldn’t afford to go there. She wanted to help students get the education she never had. “I’m giving it away so children won’t have to work so hard, like I did.” she said.

She decided to give away her life savings because she said there was nothing in particular she wanted to buy and no place in particular, she, wanted to go.

She just wanted to do something good with the money she saved.

So how on earth did this woman manage to save so much money when she earned so little?

Well, she began to save at a very early age. No matter how small or insignificant the amount was, she would save it, and here was the key – she would never take any of it out of her bank account, she just put it in. “It’s not the ones that make big money, but the ones who know how to save get ahead.” She said, “You got to leave it alone long enough for it to increase.”

And could she have spent the money she had accumulated over the years? Of course she could. She could have gone on great holidays, bought big cars, bought a new house, but she never did and when asked why, her reply was great and was this;

“My secret was contentment. I was happy with what I had.”

Oseola made her fortune a dollar or two at a time, which is the way most millionaires make their money. Only a small % amass their fortunes with one big windfall or from an inheritance. For the majority, it is a slow but steady accumulation of small amounts over time, along with living within their means.

And whether Oseola knew at the time or not, there was something else that was working in her favour and that was compound interest.

And that formulae I was referring to at the beginning of this article is for compound interest and it is:

P ( 1 + r n ) ( n t ) = A

A is the future value of your money. P is the principle invested. R is the interest rate. N is the number of times the interest compounds during the year. T is the number of years the money is invested for.

There are three parts to this formulae that are critical and they are:

1. The amount you save

2. Your rate of return

3. Time

Oseola used two of them very well i.e. the amount she saved and especially time, but what she didn’t take advantage or notice of, was her rate of return, because if she did, she may have saved millions rather than thousands.

And whilst all three are very important, you have got to be aware of your rate of return, and the account you are saving into, if you really want to benefit from compound interest. And here’s why.

If you have a lump sum of €10,000 to invest, over the next number of years, this is what your balance will become depending on what your rate of return will be:

And look what will happen if you save €100 each month in addition to that €10,000.

The great thing about compound interest is that your interest earns interest and the higher the return is, the more interest you obviously will make. So, you have to take notice of what interest rate you are earning and what account you are saving into because the difference, as you can see is massive.

I think earning 1% on your savings is like running a marathon in one of those big deep sea diver suits.

And a guy called Lloyd Scott actually did this in 2002 in the London Marathon and it took him five days, eight hours, 29 minutes and 46 seconds to reach the finish line. When he ran the same marathon in 1989 without the suit, it took him 3 hours 11 minutes.

That’s the difference between getting 1% on your savings and 7%.

And can you get that type of return? The answer is yes (the average return of one stock market index, the S&P 500 over a 59 year term averaged at exactly 7% after accounting for inflation) so it’s possible but you need to invest in equities, and you need to be in this for the long term.

Finally, if anyone ever says to me again, I can’t save because I don’t earn enough or what’s the point in saving so little, it will never amount to anything, I will tell them about Oseola McCarty, and what she did. She probably earned far less than they do and worked much harder and longer than they could ever imagine – I wonder what their response will be then.

And I’m going to leave you with one last quote from Oseola who died on the 26^th September 1999, because she left such a big impression on me. And I couldn’t stop telling my kids about her and I think her story and those like her should be told to the younger generations, because the life lessons and inspiration we can learn from someone like her is immense.

“I am proud that I worked hard and that my money will help young people who worked hard to deserve it. I’m proud that I am leaving something positive in this world. My only regret is that I didn’t have more to give.”

What a legacy to leave behind.