Compounding Interest

We’re used to hearing about compound interest as a financial term, but it applies in so many other areas as well

As a CFO, I prepare annual budgets and forecasts. I measure and compare them to actual results, updating spreadsheets, and spreadsheets of spreadsheets that are connected to each other with mind-bending links and formulas and data and assumptions linking dreams and facts. In this process, I’ve seen the effects of compound interest firsthand.

Did you know that if your capital grows by 5 percent per year for twelve years, it will grow by 80 percent over the course of 12 years?

The sooner you get started and the more you understand the consequences of your choices, the more you’ll be able to reap.

Have you heard of the marshmallow experiment? Link. Kids were given a choice between eating a marshmallow right away or waiting 15 minutes and getting an extra marshmallow. Over time the researchers followed the kids who participated. They found a much higher success rate among those who had enough self-control to wait for the extra marshmallow. Those kids were compounding interest in a way, investing their time for the extra marshmallow.

We’re used to hearing about compound interest as a financial term, but it applies in so many other areas as well. Socially, professionally, and even as a metaphor for personal happiness. Starting to play guitar and the age of 30 is much more difficult than learning at the age of 15, but it’s still much easier than waiting until you turn 50. The longer you work at something, the better you get. The earlier you start, the more time you have to invest.

This is especially true of relationships. If you invest in your emotional partnership and nurture it daily, you’ll create a positive feedback loop. Cherish each other and never lose sight of the fact that a meaningful relationship is an extraordinary gift. It allows you to give and receive and grow. But it takes work and it also requires you to choose well when you decide who is worth investing your time and your love.

As you keep investing over time, the yield from your time and energy will keep compounding. Even if you start at the age of 40, you probably have another 30 or 40 years to do good work. Taste as much as possible of what this great world has to offer, but do it thoughtfully and with discipline, keeping your long-term goals in mind. As Jerzy Gregorek says, “Hard choices, easy life. Easy choices, hard life.”

So, think about what you want for yourself in 10 years. Whether you want to be a career woman, a family woman, an amateur musician, or someone who simply knows and appreciates music, it’s so important to chart a path and follow it. Whether you want to play sports, eat healthily, or have a meaningful relationship, make these choices intentionally and work steadily to achieve your goals. Avoid going through your days on autopilot. Remind yourself of your dreams when you wake up each morning. Take each opportunity to grow, and keep compounding your growth.