Ben, my 12 year old son, came to my home office door one Saturday afternoon to make me a financial offer. The lesson he displayed was so poignant that I had to share his natural kid-like business acumen.

His opening statements were articulate if not blunt. "Dad..." "hmmmm?" "I want to get rich dad" Certainly got my attention and curious why he suddenly would decide this for himself. I looked up from my desk and saw some business-like poise in his posture. Not to mince words, I dived right in and asked him, "...and how do you plan to do that?"

He answers my question with a question..."How much money do you need to have before you are rich?" I took his question seriously, I was tempted to make light of it, but something about his determined scowl and inquisitive face said he was all business, so I answered..."When your capital and investments combined give you a hard money return of your annual current lifestyle plus extra to allow for inflation"

I explained all that to him in Kid English and he was astounded. Not at the final figure we arrived at based on $100,000 a year at 10% you would need $1 million dollars before you can retire rich. He was astounded by the concept of how an adequately funded retirement is arrived at.

He said, "If I divided that Million up over 10 years, how much would I need to save each year?" I answered $100,000. "What about per month?" I answered around $8500 per month after tax. "A week?" Around $2000 per week and pre-empting him around $700 a day.

"Then all I have to do if I want to get rich by the time I am 22 is save $700 a day every day." But don't forget I said, you need to pay approximately 30% tax and you have living expenses so you could add another 20% So to save $700 per day every day, you would need to work and make $1400 per day. 7 days a week. Also you couldn't possibly work without breaks for 10 years so you would have to transfer Sunday's earning's through-out the 6 days that you work. Around $230 per day, so your earnings in a 6 day week would need to be $1630 per day.

"I don't know if I can work that hard Dad" I looked at him and I agreed. Besides, you have to go to school. "I want to get rich, but it's too hard"

I answered him in a detailed way and he listened. I said, if you tried to achieve this goal using the vehicle of gainful employment it would be nearly impossible unless you were able to snag one of those 5% cream of the crop jobs that paid $100,000 plus per year. Assuming that's not going to happen anytime soon, at least not until you are out of college, you will have to rely on investing, compounding and leverage.

When money is compounded it grows fast. I handed him my calculator and told him to punch in $100 dollars multiplied by 2.6 which is the same as saying 160% of $100 and I told him to just keep multiplying the last answer in the calculator by 2.6 and to do it 10 times.

He screwed up his nose and complained that he couldn't read the number. The number was over $1.4 million dollars. When I told him that his face lit up then was quizzical again. He went on. "So I have to double my money every year Dad?" Exactly. Through investments and arbitrage. But not the share market or banks or government CD's you have to invest in other things.

"Like what Dad?" hmmm...how do I explain this so you understand....you have to buy value cheap and sell value dear. You have to buy a $1 dollar value for 50 cents and sell that value for a dollar or more and take the profits. Then you compound your money all over again with the higher figure.

Then when you are at the $20,000 to $40,000 level, you use leverage to buy and sell land. Other peoples money makes the compounding work faster. Let me give you an example of how leverage makes the compounder bigger. If you had $20,000 and bought some under valued land which in actual fact was intrinsically worth $30,000 you would have made a 50% increase in your capital in a single transaction. Since our goal in this case is only 160% per year, and the time it took to buy and sell the land was 2 months, we are sitting in a good position right? Another 10 months in the year left to do a similar transaction. But what if we used that initial $20,000 as a deposit and bought a bigger block of under valued land. Lets say we borrowed another $30,000 from the bank to buy a block costing $50,000

We make sure we still get the same percentage increase because we did our due dilligence on land prices in that area and know this land is actually worth 50% more or $75,000 After the 2 months and the sale is closed, we return the $30,000 we borrowed from the bank and deducted from the $75,000 we are left with $45,000, now we look at what our return for the project was. We started with $20,000 and ended up with $45,000 in the same time frame. Without the borrowed money from the bank we bought a smaller cheaper under valued block and made 50% capital gain. However WITH the banks money, with leverage, we made a 125% return.

example one 20,000 50% = 30,000 return is 50% flat ie we spent 20,000 to make a further 10,000 with leverage 20,000 banks money = 50,000 50% = 75,000 - banks money = 45,000 in this example the return is 125% we spent the same 20,000 to make a further 25,000