Compound Interest: More Than a Financial Cheat Code; a Philosophy for Life

The Path to Prosperity – Paved with Compound Interest??

If you are looking for a role model for repeatable success - Warren Buffet is a helluva good place to start. The financial titan famously attributes his prosperity to a simple yet profound concept.?Compound interest.?

“My wealth has come from a combination of living in America, some lucky genes, and compound interest,” said Buffett. And while you might not have millions to invest, ANYONE can take advantage of the magic of compound interest.

But before we discuss how, a little context for those unfamiliar.

Compound interest is the interest you earn on interest. This can be demonstrated using basic math: if you have $100 and it earns 5% interest each year, you'll have $105 at the end of the first year. At the end of the second year, you'll have $110.25. Not only did you earn $5 on the initial $100 deposit, but you also earned $0.25 on the $5 in interest. While 25 cents may not sound like much at first, it adds up over time. Even if you never add another dime to that account, in 10 years you'll have more than $162 thanks to the power of compound interest, and in 25 years you'll have almost $340.

Jaw meet floor – consider me impressed with this powerful tool. But how can the average Joe/Jen use this knowledge??

While compound interest has an impact on traditional financial investing, there are other less obvious ways compound interest can work for you. In this piece, I break them down.

Not because it’s that unique or eye-opening, but because I genuinely believe this advice will help you.

It took me a while to realize this, but compound interest is all around us. Let’s start with the most traditional and then work onto other applications.

Financial Freedom?

Let’s start with the obvious. Get that out of the way. Compound interest can be incredibly powerful when investing your savings. Those who put money away can take advantage of the growth of compound interest as your initial investment grows year over year. I may be the least qualified person to give financial advice, but this stuff works. If you can stay disciplined and invest a portion of your income each month, you reap the rewards in the long term.?

Professional Payback

This to me is where compound interest gets less tangible. Compound interest in our professional lives means investing in ourselves, learning new skills, building relationships, and investing in things that help us grow. Think of it like the stock market. You invest a little each day and it pays dividends later on in the form of career advancement, job satisfaction, and mentorship opportunities. Investing in yourself is always a good thing and if you keep doing it over and over you collect the benefits long-term.

Health & Wellness?

We are starting to see a pattern here. Compound interest in health and wellness means when you work out on Monday it helps you on Tuesday, and Wednesday, and well you get the point. Stacking workout days on top of each other makes you stronger, which means your heart health is better, your joints are more limber, and your nutritional diet is better, so your cholesterol and blood pressure are in a better spot. A mistake people often make is they ignore their health and wellness and it’s too late later in life. Half of the battle is getting started. So go to the gym even if you don’t get your best workout, go for a walk, or do a small hike. Nothing is too small. It all starts with one step. Invest in your health and enjoy the benefits later.

Family & Friends?

As per usual, I’ve saved the best for last. Invest in family and friends. These are the people who matter most to you and add richness to our lives. Say yes to the dinner you are too tired to go to, call that family member you’ve been putting off calling, and take that trip with your college buddy. Take your kid to the amusement park. Whatever spending more time with those you care most about means to you. Investing in family and friends makes your relationships deeper and I believe can give more meaning to your life.

Another little tidbit I like. According to the Journal of the Association for Psychological Science, the #1 predictor of life longevity is your spousal satisfaction. Notably, spouses' life satisfaction was an even better predictor of participants' mortality than participants' life satisfaction. Participants who had a happy partner at the beginning of the study were less likely to pass away over the next 8 years compared with participants who had less happy partners. This means investing in your marital relationship can even extend your life!!?

Make time for dates with your spouse. Make time for your kids. You will never regret investing in family and friends.

The Life-Altering Power of Compound Interest

Hopefully, by now you are seeing compound interest in a different light. Whether it's investing in your family your health or your bank account, make compound interest work for you!

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