The Miracle of Compounding
Albert Einstein, yes staring this blog with an Albert Einstein quote, “compound interest is the 8th wonder of the world.” It’s true!
Let’s say you bought a Starbucks coffee every day from age 20 to age 60, spending rounding 250 every day. Now imagine, instead of spending it every day, you would have invested it every day or every month; the total will be an amount very close to 5 crores!
Have a nice coffee, but not worth your millionaire dream.
All of this investment is the power of compounding. Its where you invest INR INR 50,000 a year and fund or the market performed a 10% growth and now your capital appreciated to INR 55,000. So, now the next year you are making another 10%; which isn’t on INR 50,000 but on the appreciated capital value of yours.
As the weeks, months, and years go on this money is going to grow and explode!
Money is not free; it doesn’t grow on trees and the concept of working for it is essential. You spend a lot of your time and sacrifices a lot of your wills, to make it. The concept of investing is like sleeping and watch your money grow the next morning.
The idea of money makes money; and when you spend it you kill it.
If it is gone out of the bank, it can’t make more money on itself, because it’s gone. You have spent it on a pair of shoes or some piece of crap that stays in your drawer, unneeded.
You killed that money and now it can’t grow for you.
The latte-factor compounding can truly change your life, here’s another miracle of compounding.
If you saved INR 1.50.000 a year from the age of 27 all the way till 65 at 10%; you would have over 6 crores. However, you’ll be even better if you start to save at 19.
If you save INR 1,50,000 from the age of 19 till the age of 26; and then you never saved another grand. You would have more money than the first person that started saving at the age of 27.
This is the miracle of compound interest.
Pay yourself first. These numbers indeed work. And the government has made it much easier today to save and invest that’s easily tax-deductible; than it was back then. The game of compound interest, however, hasn’t changed.
Investing can change your life; it has changed mine!
I am a lost and unsure 22-year-old living in a rent-free & food-filled family home; however, the surety about me is my investing habit & the only thing passive about be is my income!
The very first investment I made was at the age of 17 in Tata consumer products, co-owns Starbucks India. Simply because I’m a loyal Starbucks customer and investing there would mean that I am a part of their bottom line and every rupee I spend there is a part of their topline. I get back what I give!
Some day you are going to want your own home and that Paris trip and that retirement. The way you get there is you buy it when you are young.
So, if you are looking at this chart or reading this story; and you go “But I am not 19 or 26 anymore”. Maybe you are 30 or 35, you still do the same thing, pay yourself first. Just save and invest more because the miracle of compounding starts working the day you put it in place. The key however is that it takes decades.
Nothing gets one in days, when you try to get rich quickly that’s when you slip & fall. Compounding helps you building wealth for a lifetime.
Written by Vibha Tated, an ardent stock analyst and a freelance writer covering finance, fitness, and Jainism.
