Why Einstein Told Compounding "Eighth Wonder of the World"

 

This is great finance question you have asked from me "Why Einstein told compounding eighth wonder of of the world? 

First of all, you know that Einstein was great scientist. If he told  “eighth wonder of the world,” saying, “he who understands it, earns it; he who doesn’t, pays for it.” It means, it has power

Following are the main reasons to Say Compounding as Eighth Wonder of of the World

1. Compounding Walk Slow But It Walk Non-Stop without Tired

Compounding has great quality, it is not in high speed. It has slow speed. Suppose, if you are getting only 10% return on your investment, first two years, you will not see any effect but if 

you give time, you do not withdraw your principal and if you do not consume your earning and re-invest, it will walk long and long without stop and with simple formula of 72

Within 7.2 years, your principal will be 

DOUBLE 

within 14.4 years

your principal will be in 4 Times of its initial value 

In 21.8 years, your principal will be 8 times from its initial value

In  28 years, your principal will be 16  times from its initial value

In  35.2 years, your principal will be 32 times from its initial value

Second, compound interest has the power to build big wealth. Compound interest means interest on interest if you do not take saved or invested money for personal use in short period of time and you leave it for long growth. 

Example 

See practical, how small amount becomes big with compound interest 

Amount = Principal ( 1+ rate of interest/100)^ time

at 20th year total amount = 672

at 30th year total amount = 1744

You can see if I save only Rs. 100 with 10% interest, it will 4 times with the help of compound interest. It is the power of interest because compound interest has power to strength your money by joining it and interest on it. 

My duty is not to use this 100 but if I can do it, increase the amount of principal by saving more if I am interested to 

2. Compounding is Best Friend Who Saves and Invest and Enemy Who Take the Loan 

Compounding is wonderful in the world.  It becomes best friend who saves and invest the money

Suppose, I am person who only focus to save and invest, save and invest. For this, I have sacrifice my desire to buy things what I love and what I can be used for showing my status and my entertainment stuff. Compounding came to me

1. He says, you are my best friend. I say, I do not know you. But he says he knows you very well. You are the person who saves and invest all time without any worry.

So, we talk with each other

Me : If you are my best friend. What can do for me

Compounding : I will carry your investment at the level you can not imagine. If you will give me Rs. 100 for 35 years with rate of interest of 10% pa, I will make it Rs. 3200

If you will give me 1000 for 35 years with rate of interest of 10% pa, I will make it Rs. 32000

If you will give me 10000 for 35 years with rate of interest of 10% pa, I will make it Rs. 320000

If you will give me 100000 for 35 years with rate of interest of 10% pa, I will make it Rs. 32,00,000

If you will give me 10,00,000 for 35 years with rate of interest of 10% pa, I will make it Rs. 320,00,000 = Rs. 3.2 Crore 

It means, you have sacrifice of your Rs. 10,00,000 desire and if I deduct it from after 3.2 crore,

still, you will have Rs. 3.1 Crore which I just added through your interest. 

Can I not deserve as your best friend. 

Me : Yes, you deserve as my best friend

Me: Now, how will you become my enemy if I will take loan, even a single time

Compounding : Great question, you are becoming more smart

Dear, if you will take the loan, you have to pay compound interest. I will create barrier in your wealth growth. I will do all things to stop your way of growth and I will happy to make you financial slave. 

If you will take Rs. 1000 Loan  for 35 years with rate of interest of 10% pa, I will take Rs. 32000

If you will take loan of Rs. 10000 for 35 years with rate of interest of 10% pa, I will take  Rs. 3,20,000

If you will take loan of  Rs.100,000 for 35 years with rate of interest of 10% pa, I will take Rs. 32,00,000 from you

If you will take loan of Rs. 10,00,000 for 35 years with rate of interest of 10% pa, I will take  Rs. 320,00,000 = Rs. 3.2 Crore  from you.

ME : But, If I do not have money of Rs 3.2 crore at the end of 35 years because I had made the house with this Rs. 10 lakh, how will take this Rs. 3.2 Crore from me.

Compounding : You are becoming so intelligent day by day.

I become so bad person when you will take loan from anywhere. I am very dangerous enemy for you. 

Yes, You can not free from my revenge by saying, you do not have the money. 

You have to give me Rs. 3.2 crore through MATH rule

p (1+r/100)^t 

No one can challenge it

whether it is supreme court of India or USA Court or Russia Court or UNO 

I will sell your house even after 35 years on the road through auction because 

I do not threaten, I do the action. 

I do not abuse, I do only action.

You will depression no problem

You have heart fail no problem

You will die, no problem

Even, after your death who will have the right of your property will pay the liability of Rs. 3.2 Crore because I am your enemy and I will not give peace after your death. 

I can show this world, 

I am 8th Wonder of the World. If I make the friendship with any person, I carry on my friendship every moment. I will make the richest person to you.

But if I will become the enemy, I will make you beggar. Go on the road and beg and repay my compound interest. You deserve to slave and die like slave. 

3. Compounding is the best Teacher 

It is 8th wonder because it is best teacher.

Like a best teacher, it tries to best to say

I am compounding, 

If you will earn the first money

Never consume it all

Save its some proportion 

Invest  it for 35+ years minimum

Never withdraw it 

If you are earning the money, never consume it all 

Save its some proportion and 

Invest  it for 35+ years minimum

IF you are earning from this investment

Never consume it

It is not your hard work, hard work done by your money. 

So, respect the hard work of money. Re-invest same earning 

and satisfy from your hard work money and never try to consume earning from investment

(A)

If you will spend your 35 years like this

I will make you king of the world 

I can bring whole world's money in your foot. 

(B) I will give you huge effect in the later years of 35 not in 20 years. 

4. Compounding Can Compel to Rethink before Spending Each Rs. 1 

If you understand compounding whole, it will will compel to rethink before spending each Rs. 1

a) Can you not postpone these expenses when by investing your Rs. 1 has power to generate Rs. 28 in the end of 35 years with compound rate of interest 10%

b) Is simple living not better for achieving big dream of financial freedom in this life. 

c) If you see the magic of money your life, can not you control your expenses like 

making food at home, travel on cycle, use less petrol, use less electricity, use less paint to your home, buy less clothes, grow your own veg., grow your own fruits and save money and invest it and see its compounding effect

5. With Compounding, You can win the Fight from Biggest Intelligent People of the World 

One of great wonder, if you are not so intelligent but you have the attitude to respect compounding, you can defeat the biggest intelligent people of world in the competition of wealth building. 

Today, you will see lots of employee in different big companies. You see intelligent employees in all big companies. 

They go to office. They get the salary. Even, you are not so intelligent to reach same position but still your wealth more than them if you saved and invested your small earning long time and control your expenses. Look simple but how can compounding defeat the high salaried intelligent person

Suppose

ABC Company has employee CEO = Rs. 52 Crore in One year. 

It means CEO is earning per month through salary

It means, every month, he is earning Rs. 4.3 Crore. 

If he does not save or invest and do not get the benefit of world's biggest force, he will not any net worth.

Now, we compare them with two person 

One is rakesh jhunjhunwala ( Now, he expired ) whose Net worth is Rs. 41000 Crore 

Second is warren buffett whose net worth is ₹ 7.75 Lakh Crore

Both above two person not so intelligent but have the high attitude to grow wealth through Compounding 

Simple three factors

Invested capital

Re-invested its earning with specific rate of return

Never Disturb compounding by not withdraw same money. 

Attitude will always winner from intelligence

Tiger is neither intelligent like fox

Tiger is neither tall like elephant

but still he is king due to his attitude of bravery and taking risk. 

Related Contents 

1. 5 Benefits of Compounding
2. How to Use Power of Compounding in Share Market Investment for Becoming Rich in India