The Power of Compounding to Create Financial Wealth
Compounding is quite magical because of how it can exponentially grow finances, or anything for that matter. The key to compounding is (1), patience, and (2) understanding the mathematical power.
What it compounding anyway?
Compounding is when money that is made from a financial asset is reinvested either into the same asset or another asset to create financial growth from it as well. In other words the money that the asset is making, is put to work to make more money. And this process is repeated over and over again to grow exponentially. The more your money is left to compound and for longer periods of time, the more quicker and larger your finances will accelerate to grow.
Keys Compounding to Create Financial Wealth
Kick Start Early
The earlier you start putting your money to work, either in investing in some financial asset (stocks, bonds, certificate of deposit, etc.) or starting a business, reinvesting the proceeds from it, and continuing to do so to compound it, the larger your nest egg will be in 40 years as opposed to a shorter time frame like 20 years. So the key is to start as early as possible to take advantage of the powerful force of compounding.
Of course if your a little older and your just learning about this now, your at a bit of disadvantage. But, it’s always better starting now than never.
If you are older though, pass this knowledge down to your children. This knowledge will be worth its weight in gold if they start implementing it at a very young age. It’ll be a better gift to them rather than money itself. That’s why we say knowledge is the new money!
Continue to Contribute
If you would like to accelerate your finances even faster, continue to contribute into the nest egg of investment(s) that you have. Perhaps for every earned income you receive such as from a job or business, whatever, take a percentage out from it and contribute it into your compounding nest egg. 5, 10, 15, 40 percent of your income, anything will help to accelerate your finances to grow faster, larger, and quicker!
Keep in mind that compounding mainly works if and only if you would allow your own investment to grow. Even though the results may be slower at first, the key is time, patience, and disciplined delayed gratification. Giving compounding enough time to happen can certainly put your own money to work, thus allow you to take advantages of the bigger earnings that you can reap from when you’re older, perhaps retired!