The Compounding Effect - Live off the steam and not the pi$$ itself

The Compounding Effect - Live off the steam and not the pi$$ itself

I have always been a bit of a maths geek. Rich Dad and other books opened my eyes to Compound Interest - once I had grasped the concept I realised that this was the key to changing my financial life. I have never had even a penny of assistance from anyone (boohoo). I started with a few hundred pounds and now I am comfortably a millionaire (an utterly meaningless thing). I am not alone, thousands like me have done the same, many far more successfully. How? Compounding. Thats how I did it -  I always reinvested my money and worked smartly and quickly over time.

For geeks like me a calculation looks like this:

No alt text provided for this image

For everyone else I like this analogy:

They say a rolling stone gathers no moss. CI says a rolling stone not only gathers moss, but also the more it rolls the moss grows on top of moss, the moss collects moss as well as the stone and the size of the moss stone grows exponentially.

If you can get the stone to roll faster, even by a small amount (reduce the time period) and increase the thickness of the moss by even a tiny amount (the interest), the effect over time is immense. The Compounding effect.

After some time I realised that this could be applied to other areas of my life, slightly more effort and doing things slightly more quickly. Training slightly more intensely for slightly longer. Giving my children slightly more of my attention for a little more of the evening. Suddenly you start to see the Compounding effect everywhere.

What does Compounding mean to you?


Dennis Yentumi

Property Investor | Property Developer

4 年

Great article!!

Neil Ryder

Property tax consultants working with property investors/developers to ensure they pay no more tax than they are legally required to.

4 年

And then don't forget the Rule of 72 Andy Babbayan. By simply dividing 72 by the interest percentage per period, you obtain an approximate number of periods required to double your money. So if you are receiving an annual interest return of 7%, divide 72 by 7 and the answer is a very good approximation as the number of years it will take to double your money using a compounding investment.?It works every time. (There is a formula for this as well - too complicated for a LinkedIn post!)

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