THE MYSTERY OF COMPOUNDING
As a savvy in Math, I understood that there is more depth to compound interest than learning and teaching it.
(A short thread)
As a savvy in Math, I understood that there is more depth to compound interest than learning and teaching it.
(A short thread)
Starting with time, a second is almost equal to nothing,
1million seconds is 11.57 days, 1billion seconds is 31.7 years.
Do the math for 1trillion seconds.
Nonlinear thinking is not very intuitive but can be useful if understood.
1million seconds is 11.57 days, 1billion seconds is 31.7 years.
Do the math for 1trillion seconds.
Nonlinear thinking is not very intuitive but can be useful if understood.
Switching to knowledge,
1℅ better everyday = 1.01^ 365 = 31.18
1% worse everyday = 0.99^ 365 = 0.03
Coming to interest, first; some quick definitions.
Simple interest is interest that is paid only on the initial principal balance.
1℅ better everyday = 1.01^ 365 = 31.18
1% worse everyday = 0.99^ 365 = 0.03
Coming to interest, first; some quick definitions.
Simple interest is interest that is paid only on the initial principal balance.
Compound interest is paid on the initial principal balance plus the accumulated interest from prior periods. You earn interest upon interest!
If a car hire company is willing to offer a high yield savings account with 10% simple annual interest on a windfall of N1million and a landed property firm offer an 8% compound annual interest on the same amount,
by simple logic, you may be tempted to opt for the car hire's offer but No, it is a short term gain.
10% simple interest will generate N100K annually (10% on N1m principal)
10% simple interest will generate N100K annually (10% on N1m principal)
8% compound interest will generate N80K in the 1st year (8% on N1m principal), N86K in the 2nd year (8% on N1.08m), and so on.
By the 7th year, the landed property's offer would have leapfrogged the car hire's offer.
Do the math for succeeding years.
By the 7th year, the landed property's offer would have leapfrogged the car hire's offer.
Do the math for succeeding years.
The key here is that with compound interest, you'll receive the rate of return on both the principal and the accumulated interest.
This is the simplest best way to build long term wealth.
Whether with savings, investments or knowledge, let it compound.
This is the simplest best way to build long term wealth.
Whether with savings, investments or knowledge, let it compound.
There is power in compounding.
Little wonder, Albert Einstein emphasized that "Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't pays it".
Little wonder, Albert Einstein emphasized that "Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't pays it".
Compound interests glow when you own assets. Depreciation strikes when you have liabilities.
WHAT ARE YOUR PRIORITIES?
DO YOU OWN ASSETS OR LIABILITIES?
COMPOUNDING IS A GREAT LEVERAGE TO GENERATE LONG TERM WEALTH!
WHAT ARE YOUR PRIORITIES?
DO YOU OWN ASSETS OR LIABILITIES?
COMPOUNDING IS A GREAT LEVERAGE TO GENERATE LONG TERM WEALTH!
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