The Compounding Effect

Compounding

The Compounding Effect. Many of you have already heard this word. Compounding effect refers to the multiplication of the tangible or intangible substances over a certain period just like compound interest. It can be used anywhere. If you really get to know the magic power of this effect, you can build up a bright and secure life.

 

You can use it in finance, health, relationships, influencing people, and so on.

 

Suppose you get 100k(1 lakh) rupees and put it in a bank that is giving you a 10% return yearly(Simple interest). 🤔

Now, there is your one friend who put the same amount of money in the stock market and he is also getting a 10% return yearly(Compound interest). 🤔

Growth

 

Both of you didn't touch that money for 20 years(I know it's too long but everyone saves some money for the future) and after 20 years you are shocked.
You checked your balance and saw there were 3,00,000 rupees in the bank account.

And your friend also checked his balance and he saw there were 6,72,750 rupees(approximately) in the account.

 

OMG!😲

 

You must be shocked because their principle amounts were the same, interest rates were the same, even the periods were the same. The only difference was that one was getting simple interest and another was getting compound interest. And due to this one distinct, the former's money is normal and the latter's is more than double(than the former).

This is the magic of compounding. Many people consider Compounding as the 8th Wonder. But for the Compounding Effect, you have to have a lot of patience.

 

Here we discussed the Compounding Effect for finance💵 only. But, you can use it in other aspects of life similarly.

And remember, nothing will fall in your lap, you have to take action.

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