Home
>
Wealth Building
>
Financial Intelligence - Compounding (The Ninth Wonder of the World)

Financial Intelligence - Compounding (The Ninth Wonder of the World)

Compounding: The Ninth Wonder of the World
By Nicola Cairncross

Compounding is often described as the ninth wonder of the world. It is a concept that initially sounds quite dull, but when you understand how compounding just quietly works its magic - or conversely its naughtiness ? it's a very exciting concept to grasp indeed!

Compounding is the difference between linear and exponential growth, or put more simply, about earning (or incurring) interest on the interest on the interest, generated by your savings (or your debt). On an energy level, it's about making sure that every little bit of effort you expend, works on many different levels to bring a reward greater than the original effort required.

It's a very powerful tool and can be likened to the wind under the wings of a jet. The plane creeps slowly, slowly along the approach runways, then moves into position, then starts down the runway slowly, but as it picks up speed, the power of the engines and the wind lifts its wings and it takes off, climbing very quickly and steeply into the sky.

Compounding can turn just one ? just one - ?1 or $1 into a million pounds or dollars within 20 years. If you took ?1 or $1 and achieved a 100% return on your money each year (put another way, if you doubled your money each year) then you would most certainly be a millionaire in your lifetime. Imagine if you added another ?1 or $1 each year ? how much faster would that get you there?

And if compounding is that powerful when applied annually, how much powerful could it be when applied monthly or even daily?

On a personal finance level, most people ignore the potential of compounding, because the % interest rates we are quoted by the banks, other savings vehicles and financial institutions are so paltry. If you took your pound or dollar and increased it at the usual 3% or 4% per annum, then it would grow so slowly that we might as well not bother saving at all. You would be dead several times over before your personal wealth increased noticeably.

I know I used to feel like that! Why save now, I thought, especially when you are only saving to spend later, and when you can only earn 3-4% per year on your savings? I want to share with you, today, some of the exciting things that I learned about the power of compounding, things made a huge difference to my thinking about money. And changed me from a non-saver to an investor in one fell swoop!

There is a huge difference between saving and investing, and experienced Investors achieve returns on their money between 30% and 100% per annum ? some even manage to achieve an infinity return on their investment, because they are able to pull their own money back out of the deal, which means that they are making money with no money! These are the supermodels of the investment world!

On a personal finance front, even looking at the returns generated by investing in property over the years (12% per annum) and the stockmarket (14% per annum) gets a little more exciting. The compounding effect means that, on average, property doubles in value every 7-10 years ? that's a thrilling thought! How would you plan your property investment differently if you knew that to be true?

There is a great example of the difference in what you can achieve in just two years, if you invest ?60,000 (or dollars! I'm going to work in pounds now but the principle is the same!) by buying outright one small rental unit, versus what you would achieve if you invested the same ?60,000 in deposits on several small rental units.

At the end of the two years, if you just bought the one unit, and assuming average rates of growth, you would be worth ?6384 more than when you started. But if you invested in deposits on several units, you would be ?56,304 better off. You choose. That's compounding at work.

On a business level, compounding can work for you too. The difference between what you can earn if you are a solo self-employed person, and what you can earn if you build a business consisting of a team of "you's" is quite amazing.

The compounding effect can also be utilised in your business by automating as many of your business processes as possible. Think of the potential difference between having the services of one marketing person and one sales person (both of whom can only work so many hours in a day, both have to be paid, even when they are on holiday or off sick, so not working) and then consider the possibilities of having an automated marketing machine working 24/7 plus a team of affiliates ? unlimited numbers of independent people who are all being paid a little bit, on sales (results only!) to promote your service or product.

Nicola Cairncross is a specialist Wealth Coach, Hotelier and Internet Entrepreneur, working with bright, entrepreneurial people to enhance their financial intelligence. Visit her website at www.nicolacairncross.com.

If you would like a more detailed copy of the flats investment example in this article, just email www.nicolacairncross.com).

Visit www.nicolacairncross.com and join the mailing list to enjoy downloading some awesome free resources including a 13 page report on how to create Financially Intelligent Bank Accounts.

In The News:

Fitness centers and workout studios are starting to establish policies that prohibit shooting phone videos to protect people's privacy.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents

Apple recently notified a small number of iPhone customers in 92 countries that their phones may be under attack by mercenary spyware.

An artificial intelligence-powered home security system can fire paintballs and tear gas at trespassers. The camera identifies human faces and animals.

Technology expert Kim Komando gives her tips and tricks on enhancing your user experience a smartphone and other devices you use everyday.

A new camera called NUCA uses artificial intelligence to create deepfake photos of subjects by stripping away clothing in close to real time.

The Kimberley Kube trail-ready camper has a compact but spacious design and combines luxury, functionality and ruggedness for a weekend getaway.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Emails instructing you to reset your password for an account may be legitimate, or they may be scams. Kurt "CyberGuy" Knutsson explains.

Northrop Grumman's Manta Ray uncrewed underwater vehicle aims to revolutionize undersea missions — it glides through the ocean without human assistance.

Learn how to work Google's calendar application to streamline and organize your daily tasks from technology expert Kim Komando.

If you do not want Facebook to have automatic access to your private photos, follow our tips to protect yourself. Kurt “CyberGuy" Knutsson shows you how.

Kurt “CyberGuy" Knutsson goes into detail about Apple’s recent iOS update that allows iPhone users to instantly translate spoken language simply by using the Action Button.

Safeguarding your digital life with a reliable physical backup isn't just a precaution, it's a necessity. Kurt “CyberGuy" Knutsson provides the essential backup checklist.

Kurt “CyberGuy" Knutsson reveals how a Redditor exposed false recycling claims at their apartment, highlighting a report that only 21% of U.S. recyclables are processed.

Kurt "CyberGuy" Knutsson offers a travel toolkit featuring five technology tools to help you with booking flights and hotels for your summer vacation.

The bubble behind the clock on your iPhone can appear in different colors. Kurt "CyberGuy" Knutsson explains what each of those colors mean.

Scammers are using the power of artificial intelligence to mimic voices of people and are using the fake voices to commit crimes, like kidnappings.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Tech guru Kurt "CyberGuy" Knutsson explains the science behind the Invisibility Shield, a 6-foot shield that makes people become invisible.

The International Olympic Committee on Friday announced plans to use AI in various Olympic aspects, including athlete identification, training and judging.

Tech guru Kurt "CyberGuy" Knutsson explains an easy trick to avoid squinting while working or surfing the web by zooming in on your personal computer.

Streaming giant Roku has recently been targeted by a pair of cyberattacks, and the company confirmed over a half million Roku accounts were compromised.

The Land Aircraft Carrier combines an all-terrain, six-wheeled vehicle with a two-seat aircraft, which features electric vertical takeoff and landing.

The European Union has sent TikTok a "request for information" on the video sharing platform's newest app, TikTok Lite, under the Digital Services Act, with the aim to clean up social media.

Financial Intelligence - Compounding (The Ninth Wonder of the World)

Wealth Building