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 flatsexample@nicolacairncross.com).

Visit http://www.nicolacairncross.com/free.htm 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.

---

Get Rich Doing What Others Dont

"The quickest way to wealthThat I've found to be true;Is... Read More

Wealth Management, Wealth Protection, and Tax Planning

U.S. Supreme Justice Louis D. Brandeis"I live in Alexandria Virginia.... Read More

Self Improvement and Financial Security for the Future

Any successful person, or any anyone interested in self improvement... Read More

Is Your Money Keeping Up With Inflation?

In today's unpredictable global economy, you obviously never know what... Read More

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

Compounding: The Ninth Wonder of the WorldBy Nicola Cairncross Compounding... Read More

Dont Leave Your Financial Success To Chance

Recently I was reading a book called The Millionaire Mind.... Read More

A Completely New Way To Get Rich Rapidly

This new way is catching on around the world. People... Read More

Tax Help - Girls (and Guys) Just Want to Have Fun by Using Tax Saving Tips

In his best selling book, "Rich Dad, Poor Dad, Robert... Read More

The 11 Best Money Saving Ideas of All Time - Part 2

At any time in history, no matter what the current... Read More

Anthony Robbins 12 Reasons Why People Dont Get Wealthy

According to Wallace Wattles, in his popular wealth treatise called... Read More

Use Feng Shui Coins To Increase Your Income

Feng shui coins can allow you, among other things, to... Read More

Offshore Strategies & Services

Offshore strategies may or may not be right for you.... Read More

The One Important Secret of Making More Money Easily

If you're reading this article, it means you are a... Read More

Financial Planning For Singles

Financial planning often gets a bad rap. Part of the... Read More

10 Ways to Save $50 Per Month: The Art of Pinching a Penny Until It Screams

1. Save up to 50% per month on convenience cleaner... Read More

The 11 Best Money Saving Ideas of All Time - Part 4

At any time in history, no matter what the current... Read More

Wealth And Your Net Worth

Most people know it's important to keep and organize all... Read More

Residual Income - Part Three Finding Leaders

In my last article on Creating Residual Income I mentioned... Read More

Living Trusts: Do They Protect Your Assets From Creditors?

A surprising number of readers want to know "Can a... Read More

10 Ways To Find The Money Hiding In Your Paycheck

No matter how tight things are financially for you; no... Read More

Top 10 Secrets of Getting Rich!

As many people have observed, "Success leaves clues." If you... Read More

Learn To Budget

Do you like so many others feel, that even if... Read More

Personal Finance Rules to Building Wealth

Key 1 Pay your self firstkey 2 Saving is not... Read More

Pay Yourself First - If the Only Thing You Did Was This, Youd be Rich

Bottom line. No exaggeration. No hype. If you want to... Read More

Online Retirement Opportunity: Freelance Copywriting

For most of us, the idea of retiring simply on... Read More

Endowments and Endowment Shortfalls - What You Need To Know

Endowments and endowment mortgages have received a lot of bad... Read More

It Adds Up

Loose change that is, if you want a easy way... Read More

The Predicament of the Newly Rich

They are the object of thinly disguised envy. They are... Read More

Lesson 1 - Why Arent You Wealthy?

We will start the Financial Fitness System with the assumption... Read More

You Deserve To Retire Early

The fact is that most people continue to work for... Read More

You?re Eating Your Retirement Money

Ever think about how eating all those fast food meals... Read More

How to Grow Your Very Own Money Tree

Okay. So money doesn't really grow on trees. Unless you... Read More

Virtual Millionaire Strategy Exposed

Let's begin this lesson with a definition of the term... Read More