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.
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.