The Compound Effect

The Compound Effect

We are all familiar with the popular cliché that says “Health is Wealth” and that’s why it’s pertinent that I judiciously adhere to my routine medical check-ups. Likewise, I take stock of my life to examine how far I’ve come as well as to know if I’ve not swayed off track.

Lately, while taking one of those “stocks” I had this nostalgic feeling emanating from a book I read earlier and one sentence picked my brain — You don’t earn your way to financial freedom.

It’s almost like our life is a shopping list, each milestone achieved is added to the shopping cart, and it goes like this: ‘Go to college, get a job, get married, have kids, work your butt off, and then maybe get a job from a bigger corporation, find a way to add value, move up the ladder, invest in company stock and then retire with a pension’. A lot of us probably grew up with this mentality that was designed to carve our destiny into the rat race hall of fame.

The thing about chasing somebody’s dream is that it’s never going to leave us fulfilled. No matter what work we do, how much we do it, or how much we earn from it, if we are not following the things that bring us meaning to our lives, then it’s all pointless.

When the use of a thing is not known, abuse is inevitable. You see, when people are confronted with information, which they are not ready to accept. They will usually return to the phrase “ignorance is bliss”. Ignorance is not bliss, its merely a dose of anaesthetic which wears off in no time. Being ignorant does not mean being happy, ignorance is lack of KNOWLEDGE. One reason some people succeed is that they have knowledge other people don’t.

Investment of any kind is a sure way to financial freedom but the big question is “Are you equipped with the required knowledge to invest right?”. Today when the word ‘investment’ is mentioned, everybody seems to have a say notwithstanding the large traffic of financial gurus who doll out finance tips and strategies that are theory based with zero practicality. They simply talk the talk and don’t walk the talk.

I will show you one principle that’ll change your life and perspective forever.

Majority of investors fail to take full advantage of the incredible power of compound interest, the multiplying power of growth times growth. Compound interest is such a powerful tool that Albert Einstein once called it the most important invention in all of human history.

For instance, if you set aside #100,000 (Naira) monthly and invest at 14% compound annually, in 10years you’ll have amassed — 24,944,346.26, in 20 years — 129, 482,689.77 and in 30years — 542,682,100.22.

The simple FACT here is that WHEN you start saving outweighs how much you save. An investment left untouched for a period of decades can add up to a large sum, even if you never invest another dime.

Compound interest favours those that start early, which is why it pays to start now. It’s never too late to start or too early.

If you are early in your career, it can feel like there are a lot of things competing for your money between daily expenses, saving for a house, extended family expenses, retirement and more. However, saving now can give you a huge edge on your finances so you can retire stress-free. Also, if you are saving for your child’s education, the power of compound interest surely applies. Start saving when they are in diapers and not as they are starting their college search.

If you want to easily accumulate wealth and take advantage of the magic of compound interest, it’s important to start early and be consistent. As you can see in the example above, it’s possible for your money to grow in large sum with a small initial investment. If you consistently save and invest, you’ll have a nice rich oak by the time you retire.

The key is to start now and contribute what you can! It may seem like it’s not worth it, but even small contributions of #5,000 — #10,000(Naira) per month add up over time.

Time is of the essence, your best friend and the one thing that makes compound interest so effective. Saving now and starting early will pay dividends in your future and help you accumulate extra money.

Do not compound your problems but compound interest.