power of compounding

the power of compounding

The Power of Compounding – Study Done by Market Logic

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In order to emphasize the importance of time in the power of compounding, I am including this extraordinary study done by Market Logic, of Ft. Lauderdale, FL 33306.

In this study we assume that investor B opens an IRA at age 19. For seven consecutive periods, he puts $2,000 in his IRA at an average growth rate of 10% (7% interest plus growth). After seven years, this fellow makes NO MORE contributions—he’s finished.

A second investor, A, makes no contributions until age 26 (this is the age when investor B was finished with his contributions). Then A continues faithfully to contribute $2,000 every year till he turns 65 (at the same theoretical 10% rate).

Now study these incredible results: B, who started investing at an earlier age and who made only seven contributions, ends up with MORE money than A, who made 40 contributions but at a LATER TIME. The difference in the two is that B had seven additional years of compounding than A; those seven early years were worth more than all of A’s 33 supplementary contributions.

I exhort you to introduce this study to your kids. It reiterates the fact that the earlier you start, the richer you will be.

INVESTOR A INVESTOR B
Age Contribution Year-End Value Contribution Year-End Value
8 0 0 0 0
9 0 0 0 0
10 0 0 0 0
11 0 0 0 0
12 0 0 0 0
13 0 0 0 0
14 0 0 0 0
15 0 0 0 0
16 0 0 0 0
17 0 0 0 0
18 0 0 0 0
19 0 0 2,000 2,200
20 0 0 2,000 4,620
21 0 0 2,000 7,282
22 0 0 2,000 10,210
23 0 0 2,000 13,431
24 0 0 2,000 16,974
25 0 0 2,000 20,872
26 2,000 2,200 0 22,959
27 2,000 4,620 0 25,255
28 2,000 7,282 0 27,780
29 2,000 10,210 0 30,558
30 2,000 13,431 0 33,614
31 2,000 16,974 0 36,976
32 2,000 20,872 0 40,673
33 2,000 25,139 0 44,741
34 2,000 29,875 0 49,215
35 2,000 35,062 0 54,136
36 2,000 40,769 0 59,550
37 2,000 47,045 0 65,505
38 2,000 53,950 0 72,055
39 2,000 61,545 0 79,261
40 2,000 69,899 0 87,187
41 2,000 79,089 0 95,905
42 2,000 89,198 0 105,496
43 2,000 100,318 0 116,045
44 2,000 112,550 0 127,650
45 2,000 126,005 0 140,415
46 2,000 140,805 0 154,456
47 2,000 157,086 0 169,902
48 2,000 174,995 0 186,892
49 2,000 194,694 0 205,581
50 2,000 216,364 0 226,140
51 2,000 240,200 0 248,754
52 2,000 266,420 0 273,629
53 2,000 295,262 0 300,992
54 2,000 326,988 0 331,091
55 2,000 361,887 0 364,200
56 2,000 400,276 0 400,620
57 2,000 442,503 0 440,682
58 2,000 488,953 0 484,750
59 2,000 540,049 0 533,225
60 2,000 596,254 0 586,548
61 2,000 658,079 0 645,203
62 2,000 726,087 0 709,723
63 2,000 800,896 0 780,695
64 2,000 883,185 0 858,765
65 2,000 973,704 0 944,641
Less Total Invested: 80,000   14,000
Equal Net Earnings: 893,704   930,641
Money Grew: 11-fold   66-fold

 


Remember that as time passes, the power of compounding accelerates dramatically. If you’re a young person, all you need to know is that you must start early to stay ahead in the game of compounding and wealth creation. The best time to plant a seed was twenty years ago; now is your second opportunity to do the same. Do not waste a day!

power of compound interest

Four Steps to Harness the Power of Compound Interest

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There are four steps you need to take to harness the power of compound interest to work for you.

  • Spend Less than What You Earn. This is the starting point. Whatever your income level, at any point in life, you have to spend less than what you earn and invest the difference to apply the power and enjoy the benefits of compounding. If you spend more than you earn, then you will delve into the tailspin of reverse compounding with disastrous financial results.
  • Start Young. The earlier you start, the more time compounding will have to work in your favor, as illustrated through the examples taken up previously, the wealthier you will become. The next best thing to starting young is starting now.
  • Make Regular Investments. Remember that even a little investment goes a long way. You have to remain disciplined and make saving a priority. Do whatever it takes to maximize your contributions.
  • Be Patient. Do not touch the money. You will be tempted several times. Resist. Compounding only works with time, provided you allow your investment to grow. The results will seem slow at first, but persevere. The magic of compounding returns shows at the very end. You have to be patient for compounding to work its awesome power.

What about inflation?

Most people will argue that $1 million will not have the same purchasing power in 40 years as it has today. This is absolutely true. This is all the more reason for you to start saving now! Over the years your income will also begin to rise. With each increase in your income, if you will increase your investment, then you will add more fuel to the fire of compounding and be on the path of becoming really rich.

Having a couple of million bucks in 40 years is better than not having any money at all. Start as soon as possible, and invest what you can to let the power of compounding work its magic.

Power of Compounding

The power of compounding can make any disciplined and prudent man into a millionaire, there is no extra ordinary skill or genius required and any ordinary man or woman can achieve the desired result.

The ability to save and invest is the key to becoming rich. Obviously, a high income helps. The only proven method is to let your investments compound. Higher the return, faster your wealth will grow. Even modest savings will produce a golden nest egg that you can hatch later in life.

Miracle of compounding which wise men refer to as the ‘Eighth Wonder’ is a sure and slow path to great wealth. It magically turns a small amount of money, invested wisely, into a whole lot of cash.

Always remember that every dollar that you earn or save, is a seed that has the potential to make a million Dollars for you. So, look after each dollar seed and plant them carefully, and make them grow into trees. They will bear fruits for your family, for generations to come and set you on the path of financial freedom.

compound interest

The only action required is to find dollar seeds and to continue planting them. If you take the initial steps, remain focused and persist whilst facing the ‘Tunneling Effect,’ then one day, the power of compounding will take over and become self-perpetuating to take you to the destination of untold riches.

You don’t need to be a genius to harness the Power of Compounding to grow rich. This is no rocket science. It is the simplest and most B-O-R-I-N-G way of becoming wealthier. The only thing needed to compound your money successfully is a 100% commitment.

Each dollar that you have is a seed that can be planted to earn you hundreds of dollars. These, in turn, can be planted to earn thousands and millions of dollars.

The Power of Compounding is akin to a snowball…roll it down a snowy hill, and it’ll build on itself to grow bigger and bigger. Before you know it, there will be an avalanche of money. 

GET THE BALL ROLLING! DON’T WASTE A SINGLE MINUTE!

The time it takes to compound is a function of the amount of money (dollar seeds) you invest, and at what interest rate. A small change in interest rate can make a huge change to the final outcome. Common sense tells us that a 10 percent growth-rate is achievable, as this is backed by documented data of stock exchanges around the world and of property-price surges recorded in the past 300 years.  With little bit of leveraging, you can earn 60% to 70%, or even higher returns.

become a millionaire

Become A Millionaire With A Dollar A Day

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Every dollar bill is a money seed. Like any seed, if it is planted and allowed to grow it becomes a money tree. This tree once grown up will bear fruit year after year. It will also provide with the seeds necessary to plant further trees. If you destroy the seed, it will never grow to be a tree. Now let us see how the one dollar seed grows into a million dollar tree.

If you invest one dollar at 5% rate of interest, it would grow into a million dollar tree in 284 years. If the same dollar is invested at 10% interest rate the time is cut short to 145 years. It will take only 75 years for a dollar to become a million if you invested at 20%. Not planning to live that long? Then plant a few more dollar bills. It is that simple. Let us see what happens if you start planting one dollar every day, i.e. $30 in a month.

A Dollar a Day will make you a Millionaire in your Lifetime

It is easy if you want to become a millionaire in your lifetime then save one dollar a day and invest it sensibly. Please study the following statements carefully:

A dollar a day invested at 5% will take 100 years to become a million.

A dollar a day invested at 10% will take 56 years to become a million.

A dollar a day invested at 20% will make you a millionaire in only 32 years.

 

Want to be a billionaire?

A dollar a day, when compounded at 20% interest, will give you a billionaire in 66 years.

You will say that earning 20% return is not possible. By leveraging you can receive not only 20%, but go as high as 60% to 70%, or even a 100% return on your investment.

This magic happens if you plant one dollar bills every day. I am reasonably sure that most of us can do better than $30 a month. We can dramatically cut short the period and become millionaires much faster if we can plant let us say $10 seeds every day.

become a millionaire

If you understand these simple mathematics, then that one dollar bill in your hands will never feel the same again. It holds the seed for your financial future and well being. If you lose it or spend it foolishly, then the dollar seed is destroyed forever.

If you save it and invest it wisely, it has the potential to make you and your family rich forever. Once it grows into a million dollar tree— it will bear that fruit for you and your family, year after year.

You will ask if making a million dollars is so simple then why is not everyone a millionaire. The simple answer to that is lack of discipline. Most people lack the discipline and perseverance required over an extended period of time.

Becoming a millionaire can be a very boring and repetitive exercise over a period of time. Most people want excitement and thrill, and in the process, they gamble away their financial future.

There will be skeptics who will say sustained 20% growth is not possible. Well, Warren Buffet, the investment guru, has done it consecutively for the past 40 years for his investors.

You don’t need to be a financial genius to achieve this. All you need are a few financial skills and discipline. Justly put, all you need to do is funnel some of your ill-spent dollars into financially sound investments.

power of compounding

Power of Compounding – The Tunneling Effect

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Understanding the ‘Power of Compounding‘ is the surest and safest way to riches. If it is so simple then why do people fail to apply its awful power.

When you first start out investing using compound interest, all the hard work takes place upfront, in the beginning. You have nothing to  show for your effort.

This is called the ‘Tunneling Effect’; it causes a lot of dismay and most people give up at this point because they do not see any tangible results for their sacrifice, hard work and effort.

If there is a confluence of patience and perseverance at this stage, then there is not only light at the end of the tunnel—there’s an illuminating Sun shining in all its glory for you to bask in. Anyone who has become wealthy has passed through this dark tunnel. There is no escaping it.

“Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men of talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent.” – Calvin Coolidge

Warren Buffet, one of the richest men in the world, remarked about his wife when he was building his wealth “Susie didn’t get very excited when I told her we were going to get rich. She either didn’t care or didn’t believe me – probably both, in fact.” You can read the biography of any wealth creator, and you will find in it the universal truth of the ‘tunneling effect’ and how they wanted to quit but didn’t.

Power of Compounding – Critical Mass

If you persist and as the time goes on the critical mass kicks in and things begin to get better. Your investment becomes self-perpetuating; it starts growing under its own steam. The challenge at this stage is to not change course

The problem with the human mind is that it loses its focus rather easily; it diverts its attention to other thoughts and ideas. It will eventually start looking at other options. The key here is to maintain focus. Compounding is boring— B-O-R-I-N-G. It is boring until the money starts to pour in; compounding becomes very interesting hereon. In fact, it becomes downright fascinating! Compounding, if allowed to continue, catalyzes the expansion of your wealth to unfathomable levels.

The principle of compounding is also applicable to other forms of investment like: real estate investments and network marketing. Ninety percent of people drop out of network marketing because they do not fully appreciate the power of compounding. They feel discouraged once they face, and have to endure that tunneling effect, and quit. They fail to see thelight that is just around the corner; dogged persistence is a great quality to have if you want to succeed.

Compounding Only Works In Time

The great thing about compounding is that anyone can do it. Compounding is the royal road to riches. Compounding is the safe road and the sure road. To compound successfully you need the following: perseverance in order to keep you firm on the savings path, and you need time—time to allow the power of compounding to work for you. Time, in fact, is the most powerful element in the process of compounding; nothing comes close to it.

 There is a paragraph in ‘The Richest Man in Babylon, The Power of Time’ that explains this perfectly:

“Wealth, like a tree, grows from a tiny seed. The first copper you save is the seed from which your tree of wealth shall grow. The sooner you plant that seed, the sooner shall the tree grow. And the more faithfully you nourish and water that tree with consistent savings, the sooner may you bask in contentment beneath its shade” (George S. Clason, 1926).

how to get leverage

How to Get Leverage in Other People’s Time and Effort to Grow Rich?

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All of us are born with different talents and proclivities. Some have a higher IQ, others are taller or better looking. But all of us have one thing which is universal, and that is time. All of us, without any exceptions, have only 24 hours in a day. It goes without saying that to be successful we have to leverage our time.

Most people look for job security rather than opportunity. They will sell their time, effort, resources and connections for a very low price. Wealth creators leverage the time and effort of others to generate wealth for themselves. This is the simplest form of leverage in labor intensive industries.

In fact, most businesses in today’s world are founded on other people’s time and effort.

“People without leverage work for those with leverage.“ – Robert Kyosaki

If you are an employee, your company is leveraging your time and effort to increase their profits. It may sound cruel but it is the truth. This has been happening since the dawn of civilization. It is high time you started thinking of breaking out of this cycle, and empowering yourself by using other people’s time and effort to build your wealth.

Free up your Time

You have to become a master at offloading routine jobs; to free up your time to concentrate on areas that are more creative and will help you create wealth faster. I am amused by people who are so self-efficient that they will not trust another human being even with the most mundane jobs, because they do not trust their competence. This is the sure route to stagnate.

To succeed and progress in life, you have to find people to replace your management and skillset in the shortest possible time frame.

You have to use the effort and energy of others to grow rich. This might be as simple as hiring someone to clean your house, mow your lawn, dry clean and press your shirt or hiring technical people to do your routine jobs at work. You should first write down and offload your bottom 10 routine activities (you don’t enjoy doing,) that take up your time and energy from productive work, which in turn, can generate revenue for you.

You have only 24 hours in a day. No matter how talented or efficient you are, you can earn only a limited amount of money if you are paid by the hour. With a 40 hour work-week you can, at best, work for only 2000 hours in a year (assuming you take a 2 week vacation time and work 50 weeks).

If you employ, let us say, 100 people in your business, your work output will be 200,000 man-hours and your income that much higher

“I would rather earn 1% off a 100 people’s efforts than 100% of my own efforts.” – 

You can also benefit from a percentage of other people’s efforts and dramatically increase your income and freedom by learning to leverage your time.

“He who stands on the giant’s  oulders; sees farther than the giant” –

To apply this technique, great human and management skills are needed. If you lack management skills; a more practical and pragmatic approach is to outsource jobs that need co-ordination of human skills. In this way, you avoid the hassle of managing people.

power of compounding

Power of Compounding – Some Fun Maths

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To understand the awesome ‘Power of Compounding’ let us do some fun maths.

Let us take an example of Kid A, who gets a supposedly great paying job for a 20-year-old at $45,000 per annum. He actually survives on the same $15,000 a year that Kid B, going to med-school, survived on. Now let’s assume that the 20-year-old who skipped med-school for that great paying job invested the remaining $30,000 of his salary in stocks.

Here are the facts:

The med-school student. Kid B, graduates ‘on time’ at the age of 28; secures a job paying $75,000 a year and pays all of his debts off by the age of 33—so theoretically, he’s 33 before he actually has an effective salary of $75,000.

Kid A, who skipped med-school and invested in stocks, earned the historical average of 10.1% annually on his money (10.1% since 1926…but if you skip the Great Depression years the average is actually closer to 13%). So, where is this kid at the age of 33? He has $920,180 dollars in compounding assets. Coupled with his $45,000 annual salary, he will earn $135,000 at the age of 33 while the doctor earns $75,000.

The doctor cannot mathematically catch up to the scrub (Kid A) who’s still at his 45k year salary (maybe more). 13 years hence, he has about 122k to reinvest in the market that year while the doctor will never be able to match that investment; he will always play the catch-up game no matter how much he may earn.

But none of this actually happens, does it? That kid, A doesn’t invest, and the doctor stays in debt. The statistics mentioned above are just used as a guide to elucidate a point; it does not mean that the right education doesn’t give fruitful results. .

What’s the point?

The point is that understanding compounding, and starting out early makes you wealthy. It’s surprising they don’t teach real-life economics in school.

power of compounding

The Golden Rule of Accumulation and power of compounding is – START EARLY. Time, without a doubt, is the most important powerful weapon in an investor’s arsenal. There is nothing that comes close to it.

“When you’re young, you have an asset money can’t buy: TIME. Start saving now and turn pocket change into riches.” (Erin Burt, 2007)

The power of compounding accelerates  and creates a snowball of money. At first, your returns may appear unsatisfactory, but if you’re patient, eventually, your initial investment will grow enormously.

Effect of a Small Increase in Interest Rate

Another important facet of compounding is that a small change in the rate of return can produce a huge impact over time. For instance, if you gift your newborn son $10,000, and if his portfolio returns 10% annually, then your original gift of $10,000 will grow to $4.5 million by the time he is 65.

But if his portfolio returns 8%, then it grows to only $1.4 million. On the other hand, if it returns only 5%, the portfolio will increase to a mere $227,000. In other words, if the rate of return is halved then, the portfolio will be less than 1/20th the size.

This is a very crucial to remember—a minimal percentage change in interest rate can have a huge impact on the final outcome. So when you are investing or borrowing money for real estate/business, negotiate interest to the second decimal point. Banks and financial institutions understand this because it is their bread and butter. So should you, because if you do not negotiate hard no one will give you an inch.

In the game of money, he wins who understands money the best.

power of compounding

Power of Compounding – How to Find Money to Invest

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Power of compounding works only if you have dollars to invest. Most people find it hard to get started because they do no have money to invest.  Let us examine some creative ways to find money to invest.

You can never build the wealth you desire if you do not spend less than what you earn and learn to invest the difference. In majority of the cases, the rich are not rich because they earn a lot of money. The rich are rich because they save a lot of money.

Compounding principle is not possible if you spend more than you earn. Even if your salary is a million dollars and you spend million plus one dollar compounding  will simply not work.

Saving is the Key to Compounding

The only way you can find dollars to invest is either by increasing your earning power or simplifying your life to reduce your spending.

In the beginning, it is far simpler to understand and make changes to your spending habits.

For those living on subsistence level, it may not be possible to change their spending habits by very much because most of their purchases are for necessities of life.

There are however leaks that occur in our spending of which we are sometimes not even aware of. If we can stop the leaks and save a few dollars each day then we can generate funds for investing and be on our way to becoming millionaires. Please find below some suggestions that can generate instant cash flow for investing:

Think before you buy

power of compoundingEvery time you make a purchase take an extra minute, to think if you really need to buy that item. Rich take that extra one minute and poor don’t. Most of the time we buy on impulse and get saddled with unnecessary things that we don’t need in our lives. Think also if you can rent an item or borrow it from somewhere if you don’t need it for long. These can include renting a DVD or getting a book from the library instead of buying it.

Delayed Gratification

This is true for luxury items. Just delay the purchase by a couple of months. If you want to buy a new car, delay it. If you want to purchase a TV, just delay it by a year. This simple act of delaying purchases will add thousands of dollars to your pocket.

Increase your Planning Horizon

By only increasing your planning horizon you can save hundreds of dollars. As with airline tickets, the longer the planning horizon, the cheaper the purchase.

Ask for a discount

If you don’t request a discount, you will never get one. Always ask for one! You will be surprised how many times you will get one. Remember every dollar saved is a potential million dollar tree.

Examine the Receipt for Errors

Always ask for a receipt and examine it for errors. This simple act will save you hundreds of dollars every year for planting seeds for the money tree.

File your Receipts

You must file your receipts as soon as you get back home. This serves two purposes. Firstly you can change or replace an item if it does not work or becomes faulty. Secondly, you can claim a tax rebate if you are self-employed or running a business. Most people throw the receipt, misplace it or dump it into a cardboard box from where it is troublesome to retrieve at the time of filing tax return. If you are in 30% tax bracket- you lose 30% money on each and every receipt you misplace. It may look minor but is a huge loss when you consider it from the point of destroying seeds that would have made you millions of dollars in potential income.

Plug in Tax Leaks

What most people do not realize is that the biggest chunk of cash outflow from their pocket is their taxes. These can range anywhere from 20% to 55% of the income. This is huge in terms of dollars. Most people hesitate in employing the services of a competent tax consultant, thinking that it costs money. Nothing can be further from truth. A good tax consultant, through his advice on tax planning, will not only pay for his services but also save you thousands of dollars that can be used for planting money trees. Another suggestion is that even if you are a paid employee, you should think in terms of starting a home business, or invest in property to save on tax. Please speak with your local tax consultant before you embark on this course because tax laws are different in each country.

Buying Wholesale

Avoid paying retail price for your purchases. Try and buy at wholesale prices or at stores that offer discounts. Use coupons, shop online and compare prices. Make this a habit. It will save you thousands of dollars every year on your primary purchases.

Carryout Plastic Surgery

Want to save 20% to 30% in your expenses? Take out all the credit cards from your wallet or purse and cut all the cards except one. Make it a habit to pay off your credit card balance as and when the payment is due. Never pay the minimum balance. It is the costliest loan you will ever borrow. With the use of plastic credit cards we have lost the feel of money. It does not hurt to spend money because we don’t see it coming out of our wallet. Buying now and paying later creates a cycle of debt. Instead, we should save now and invest in the future. These simple actions will set you free and save you massively—up to 30 percent in the coming year.

Check your Automatic Payments

These days, for the sake of convenience, we set up automatic payments for all our regular expenses. We set payments for our electricity bills, insurance, water bills, rates, hire purchases, mortgage payment, telephone bills, credit card payments, etc. on monthly or weekly basis. If counted this is a massive financial outflow from our pocket. The danger here is that once we set up the automatic payment, we tend to forget about it and fail to regularly audit our cash outflow. We do not analyze our bills. We become complacent and never shop around for new mortgages or insurance even when there are cheaper products available. Regular auditing of your automatic payments is an absolute must if you desire to save dollars for investment seeds.

Energy Audit

Energy AuditEnergy costs are soaring. They are likely to increase further in the coming years. Our energy bills, whether it is the cost of heating, cooling, lighting, cooking or driving a car will form a fundamental part of our expense basket. It is imperative that we take a hard look at this major source of outflow of our hard earned money. Most energy companies will carry out an energy audit of your home for free. You must take advantage of these audits and consider technological measures to reduce your long-term energy bills, and make changes to your house, living style and the kind of car you drive—this will not only save you hundreds of dollars every year but also save the environment.

Buy Second-Hand

You can save thousands of dollars by buying second-hand. For instance, a new car out of the showroom drops in price by around 20 percent. It is prudent to buy a second-hand car that is one to three-years old, which can be purchased at a discount of 20 percent to 50 percent on the original purchase price. A dollar saved is a dollar earned! — And you are on your way to planting money seeds.

Make a Garage Sale

Look around your house and storage. You will find hundreds of items that have outlived their utility for you. Be it a piece of furniture, a book or baby clothes you no longer need. These may be handy items for someone who needs them. Carry out a garage sale or list them on an internet site that specializes in such sales. You will not only clear your house of unnecessary junk, but will also generate invaluable dollar seeds that can get you started on the path to become a millionaire.

Barter Your Skills

You can save hundreds of dollars by trading your skills; by becoming a member of exchanges that are springing up in most towns and countries. This was the oldest form of business before money was invented and is again gaining popularity. This can be a source of considerable savings in your travel, entertainment and repair bills if you are willing to exchange your skills.

Hundreds of Other Creative Ways

There are hundreds of other ways to save money. You are only limited by your imagination. Dine out? Eat in. Use carpool to work. Take the bus instead of a cab. Email instead of using the phone. Go out for a swim in the sea or for a picnic in the park—it is free entertainment. Never buy extra service contracts or extended warranties; manufacturing guarantees are in most cases adequate. Only run a full dish washer. Put on warm clothing instead of room heating. Take a shower instead of a bath. Don’t play lottery, casino or go to races— the law of probability insinuates that you will always be a big loser. The list is as big as your imagination.

If you take action on even few of the suggestions, you will have more than enough dollar seeds to plant and to become a millionaire through the power of compounding.

the power of compounding

How to Grow Rich Through The Power of Compounding

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You can grow rich through the power of compounding if you fully comprehend how it works. It is extremely simple but very powerful.

Albert Einstein, arguably one of the smartest men to have lived, is reputed to have said, “The most powerful force in the universe is compound interest.” He called it the “Eighth Wonder of the World”. However, it is baffling that so few of us fully comprehend the dynamics of compounding, its application and the paramount power it generates.

We were taught how to solve compounding problems at school—and back then we were completely oblivious to its awesome power… Our teachers would have been millionaires had they understood its power. Unfortunately, like us, they only knew how to solve textual problems without being fully aware of the magnitude of it; when applied correctly- it has the capacity to change our financial future.

Understanding the Power of Compounding

For the ease of understanding let us take an example: Imagine you could invest one dollar at the beginning of the month—now imagine that one dollar in saving double with each passing day for an entire month.

On day two your investment will double to $2, on day three it will be $4 and on day four it will amount to $8, so on and so forth. I have plotted weekly graphs below to show you how your investment will increase. Allow these graphs to impinge on your mind, heart and soul because they hold the fundamental principle for you to become rich.

First Week

If you observe the graph above, you will notice that on day seven your initial investment will be worth $128.  Nothing too inspiring, right?

Second Week

After the end of two weeks (fourteen days – see graph below) your investment would have increased to $16,384. I’m sure it is still not exhilarating.

 

Third Week

On completion of three weeks (21 days), your investment would have grown to over two million as depicted in the graph below. Now things are starting to get interesting.

 

Last 10 Days

At the end of four weeks (28 days), your one dollar investment will now be worth over two hundred and sixty eight million dollars. Wow now, this is getting interesting.

The fun is not over. In the next three days: 29th, 30th and 31st, your net worth will be over two billion dollars ($2,147,483,648, to be exact). In the last three days your investment multiplies nearly 10 fold. See how your money increases   in a matter of four days (28th-31st), on the chart below.

Graph Depicting the Entire Month’s Growth

To help put your investment into perspective– observe the graph below that depicts how your investment will grow during the month. You will notice that during the initial period (up to the 22nd day, to be precise) your growth is not even visible on the chart. This is called the ‘Tunneling Effect’ .

These graphs have been included to highlight the simple truth that “With compounding your money multiplies exponentially if you give it time.”

If you were to wait just one more day—that is the first day of the following month, then your net worth will double to $4.3 billion. Moving forward with the passage of each successive day, your net worth will continue to expand at a mind-boggling pace.

Monthly graph shows the the tremendous power of compounding. Of course your money does not double every day. But by smart investing you can double your money every 5 to 7 years. By applying leverage sensibly you can double your investment in one to two years. This is what educated investors do to grow their wealth.

Solo Build It!