Power of Compounding

compund interest

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it” – Albert Einstein

In life we tend to overlook those small things which we think will not add value. Like we tend to over look emotions of our parents sometime, well! it is not intentional but happens. We overlook negative feedback or we overlook how much a friend cares about you. There are many such instances.

When it comes to personal finance the one thing I normally see, people tend to over look is “Power of Compounding”. Why there is such a disinterest about this beautiful Gods gift I would call? When I continued my survey I found out that most of working class at the age of 22 – 25 do not know about compound interest and the power of compounding in life. Guys and Girls! power of compounding is inversely proportional to your age. The more your age, the less benefit you get out of it. Please start early, this is the best tip I can give you. I was at the age of 23 when I started to invest and I am regretting for starting so late.

Let’s take a case study, so that you can understand it better.

Allan is 23 years old and David is 30 years old. Allan is getting paid 30,000 per month and David is getting paid 55,000 per month. David was enjoying his life, he never taught about savings. Whatever he was getting paid, he used it for maintaining his extravagant life style. But Allan out of his salary starts saving 8,000 per month on a Recurring Deposit plan for 7 years.

At the age of 30, you get to make some important life decisions. Like marriage or buy a house or a car. If your bad luck is utterly bad :), then all the above together. Now any guesses? By how much bread, Allan has upper hand at the age of 30?

By saving 8,000 every month Allan’s total net wroth grew to 892,575. Don’t you think Allan is in better state at his 30? All of this, by saving just 8,000 per month. What David could have done differently when he was 23? That’s the power of compounding for you!!

“Time lost cannot be Regained”

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