The Magic of Compounding: The eighth wonder of the world.
The most important thing that I could suggest someone with respect to wealth building is start investing early. You will be amazed how power of compounding will make you wealthy if you start early.
What is Compounding?
Compounding is when your investments generate returns, and those returns start earning even more returns. Over time, your money doesn’t just grow—it multiplies!
The biggest secret? Time matters more than money. The earlier you start, the less you need to invest to reach the same goal.
Still thinking how? Let’s see this in action with an example!
Let’s go back to our two characters- John and Jane. They both start working at age 25. Jane, the smart saver, starts investing $500 per month in a high-return index fund. Since she is young, she can afford to invest in higher-risk funds, which historically offer better long-term returns.
💸 John, the spender, enjoys his income but doesn’t invest anything. Ten years pass, and at age 35, he finally decides to start investing $500 per month, just like Jane.
At age 54, they both check their accounts.
Who has more money?
✅ Jane’s account balance: $1 million 💰💰💰
✅ John’s account balance: $338,000 😨
Jane’s wealth is almost 3 times more than John’s, even though they are investing the same amount per month!
To make $1 million at the same time as Jane, John would have to invest $1,485 per month, almost three the time Jane’s monthly amount.
The Real Challenge: Can John Reach $2 Million?
Seeing Jane’s success, John gets competitive. He tells Jane:
🗣 “I’m going to make $2 million at the same time you will!”
Jane smiles and replies:
🗣 “If I continue investing $500 per month, I’ll hit $2 million in 7 more years—by age 61. Good luck catching up, John!”
John panics and calls his financial advisor. He asks:
🗣 “How much do I need to invest every month to reach $2 million in just 7 years?”
📞 The advisor’s answer makes John’s jaw drop: $11,000 per month!
John realizes he doesn’t even earn that much. The cost of waiting has made it nearly impossible for him to catch up!
Moral of the Story: Time is Money
🚀 The earlier you start, the less you have to invest to build wealth.
If John had delayed his investment by just 5 more years, he would have needed to invest $2,750 per month just to reach $1 million at age 54!
💡 Jane’s success came from one simple decision—she started early.
🔹 Want to build wealth? Start investing today. Even if it’s just $100 per month, the most important thing is to get started.
📢 What do you think? Drop a comment below! 👇
