I had typed my heart out and it didn’t save, so everything wiped and I have to retype this again. WOW! Anyway here it goes. Read to the end, it’s worth it.
So, my friend Tosin Olaseinde always talks about the law of compounding when she’s inspiring people to invest. And it works in finances but what I did not know is that it also works in different areas of your life: friendship, learning, social media, career, business, etc. Let me break it down for you with this game.
Let’s play a game of Which scenario makes you, richer?
1. You give your friend $100,000 at 20% simple interest for one year
2. You give your friend $100,000 at 5% interest for 12 months (Microfinance bank style)
Which scenario are you richer?
If you said 2, you are correct! Here’s why!
In scenario 1, you will make $110,000 because 10% of $100,000 is $10,000 + the initial $100,000 = $110,0000 (Simple interest. Straight forward).
In scenario 2, you will make $181,984.89 because the interest will be calculated on the $100,000 in the first month = $105,000 , then month 2 total will be 5% x (105,000), month 3 will be 5% x (month 2’s total) and it goes on and on for 12 months.
Compounding makes sense when investing! It requires constant effort at a consistent frequency. It means if you invest $20 every month for 5 years, without withdrawing your profit, irrespective of rise and fall of the market, every single month, your money will be worth more than someone who invested $1000 once every year in the same investment. That’s the power of compounding.
Compounding recognises little effort that is consistent. It recognises you showing up even when it doesn’t make sense. It is what the concept of practice makes perfect is built on. Even IG algorithm is built on it. It means you keep writing even when no one is watching, you keep dishing out your awesomeness even when no one is clapping for you. It means perfection is not the goal. Growth is the goal.
See, compounding will help you build quality habits. If you invest $20 every month for 5 years, it will become a habit. If you just wake up and skip everyday for 1 year, you’ve built a habit. Your body starts to crave it. It’s not about just losing weight, it’s about doing something that makes you feel good. Think about your best friend or your favourite person in the world, you don’t think twice about hanging out with them or giving them gist, you consciously made time for it at a certain frequency and now, you don’t even think twice before you do it. If you post on social media without chasing followers and likes, just with the goal of compounding, that every effort you are putting in is re-investing your initial effort + your little growth as in:
Today’s result = 2% interest x (today’s effort + yesterday’s result)
You will notice the growth.
This further means that, we have to declutter and focus. If you spread yourself too thin, the compound results may not be that enticing. So pick 1-5 things you want to experience the law of compounding in. Dedicate 30 minutes to 1 hour everyday on each one. Take stock in one year. Write it down, paste it where you can see it, June 12, 2022. We will revisit. It could be anything: money, skill, relationship, your brand anything. If you like you can share it with me. Should we create a special email group for that?
Let’s test it and see.
Remember it’s not about perfection. E.g. if yours was social media, you will post at a certain frequency everyday and dedicate yourself to learning and practicing within those 30 minutes. Not in an eyes-service kind of way but honestly, with the goal to be better at that thing everyday.
What If you don’t feel like it?
Try this: When you want to do it and you don’t feel like it, stand up, force yourself to do it. It will suck for 5 minutes but push through. After a while, you’ll notice the “craving” to do it. Watch the video below:
Are you going to try compounding with me?
