Never Spend the Principal: Harnessing Compound Interest for Financial Success

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“Never spend the principal.” These words, ingrained in me by my father during my upbringing in a suburb outside of Cleveland, have become a guiding mantra throughout my life. Whether I earned money from mowing lawns, working at the local diner, or receiving birthday checks from my godmother, my father consistently reminded me of the importance of preserving the principal. Although I occasionally grappled with the desire to spend on immediate desires like new soccer cleats, his message has stuck with me and continues to shape my financial decisions to this day.

While “never spend the principal” has served as my financial north star, I’ve never actually asked my father where he learned the phrase or how it influenced his decision-making process. Nevertheless, it has empowered me to save for my first house, consider the advantages of a 1031 exchange, and make informed choices when liquidating investment funds. However, as I strive to save for my children’s college funds, plan for retirement in the next decade, and contemplate generational wealth, I’ve come to realize that merely saving the principal won’t be sufficient.

A few years ago, I proudly invested $30,000 in my first multifamily deal through This investment made me feel as though I was putting my father’s advice into action, sharing in the success of the venture initiated by Dan, Danny, and Brandon. Initially, as the distributions started rolling in, I exhibited discipline by stashing the money away in my savings account. But after several months, as the distributions accumulated to around $600, my discipline began to waver.

The temptation to reward myself with a celebratory dinner at one of my favorite steak places in Chicago, Bavette’s, grew stronger. I convinced myself that I deserved this treat after all the hard work. So, I indulged in a memorable evening with my wife, relishing in the joy of the moment. However, the following day, when the credit card charge arrived, my happiness quickly faded. I had spent not only all of my distributions but also dipped into my own pocket. It was then that my son aptly pointed out, “Dad, you have your grumpy pants on.”

Feeling regretful, I immediately dialed my father’s number, seeking solace in his wisdom. “Don’t spend the principal and reinvest the distributions!” He chuckled and reminded me that I also needed to harness the power of compound interest.

We’ve all heard Warren Buffett extol the virtues of compound interest, and numerous wealth calculators and real estate investing books explain the process of earning interest on both the initial investment and the accumulated interest over time. However, they often fail to address the human emotions and other factors that can derail this process. In my case, the sheer excitement of receiving distributions blinded me to the original purpose of my investment and the potential it held.

Let me clarify: I’m not suggesting that one should never enjoy a nice dinner or spend quality time with their loved ones. Rather, my mistake lay in spending the distributions without considering the long-term goals I sought to achieve. I had failed to plan how I would use the distributions and overlooked the influence they would have on my savings account. It became evident that I needed to insulate my financial goals from these influences by automatically rolling my distributions into an investment account, thus transforming them into my “sacred principal” — a line I vowed not to cross.

Since that eye-opening incident, I have become much more disciplined in “not spending the distributions.” In fact, I have found a new “savings account” in the debt fund, which earns a solid 8% return on my distributions. I plan to utilize these funds for my next passive investment. As a result, my father’s mantra has evolved into a longer version: “Never spend the principal and take advantage of compound interest.” I now share this wisdom with my own children, although with varying levels of success — my eight-year-old son grasps the concept, while my four-year-old daughter simply laughs.

As for our dining experiences, we have adjusted our approach. Instead of indulging in expensive steaks outside the house, we now plan outings more carefully to ensure they remain within our budget. This change has not only helped us maintain financial discipline but has also allowed us to enjoy quality time together without compromising our long-term goals.

“Never spend the principal” has served as an invaluable mantra passed down from my father. However, I have come to understand that preserving the principal alone is not enough. By coupling it with the power of compound interest, I have unlocked a path to financial success. Embracing this mantra has enabled me to navigate investments, plan for the future, and safeguard my financial well-being. As I continue to pass down this wisdom to future generations, I hope they will also realize the transformative potential of “never spending the principal” and harness the advantages of compound interest in their own financial journeys.

Furthermore, I have realized that this concept extends beyond personal finance and has broader implications for achieving long-term goals and building wealth. It encompasses the idea of preserving and reinvesting resources, whether they be financial, intellectual, or even emotional. 

When we apply this principle to other aspects of life, we see its relevance in various domains. For instance, in education, it encourages us to continuously learn and acquire new knowledge without depleting the core foundation of what we have already learned. Just as we reinvest financial returns to generate more wealth, we should reinvest our newfound knowledge to expand our intellectual capital and pursue new opportunities.

In relationships, this approach advises us to nurture and cultivate the core values and qualities that attracted us to our loved ones in the first place. It urges us to invest time, effort, and affection into building stronger bonds, instead of just resting on laurels. My wife and I do this simply by setting aside one night per week with no TV or other distractions to talk about what is going on in each other’s lives and how we are feeling. We always feel closer and stronger after those nights rather than catching up on Yellowstone. I fully believe by reinvesting in our relationships, we can ensure their growth and longevity.

Similarly, in professional endeavors, never spending the principal means utilizing our skills and experiences to create more significant impact and advance our careers. It encourages us to reinvest our successes, using them as stepping stones to reach higher levels of achievement. Instead of becoming complacent or resting on our laurels, we should continuously seek opportunities for growth, skill development, and innovation. 

This also applies to entrepreneurship and business. Successful entrepreneurs understand the importance of reinvesting profits into the company, whether it be in research and development, expansion, or talent acquisition. By doing so, they ensure the sustainability and growth of their ventures, enabling them to thrive in a competitive market.

In essence, this principle encompasses a mindset of long-term thinking, discipline, and reinvestment. It encourages us to look beyond immediate gratification and consider the bigger picture. Whether in personal finance, education, relationships, professional endeavors, or environmental sustainability, this principle offers a guiding light toward success and resilience.

As I pass on this wisdom to future generations, I hope they will embrace the principle of “never spending the principal” in all aspects of their lives. By doing so, they can navigate the challenges of an ever-changing world, build a solid foundation for their future, and create a legacy of sustainable success.