Anyone who has ever had a mortgage knows about compound interest. And hopefully, you know enough to take advantage of compounding when you save. If you’re not familiar with how compounding works, consider the Rule of 72 — To calculate the time an investment will double, divide 72 by the interest rate. For example, If your bank is offering you a certificate of deposit at 4% interest, your money will double in 18 years (72 divided by 4). Or conversely, to calculate a hoped-for rate of interest, divide 72 by the number of years you would want to double your investment — to double my money in 12 years, I would need a 6% annual rate of return (72 divided by 12). That’s how compounding works.
But what you may not realize is that compounding can also be applied to many other aspects of our daily lives. Take brushing your teeth — clean teeth require a miniscule investment in time and money every day. The more cleanings, the healthier the mouth. But skip the cleaning for too many days, and the neglect will compound into major dental problems.
This “universal compounding” is discussed in the article “The Rule of Compounding: Why Small Steps Lead to Big Gains” by Brad Stulberg. How many ways? Consider —
- Eating your vegetables.
- Physical activity.
- Making time for intimate connections.
- Practicing a musical instrument.
- Meditation (or other forms of contemplation).
In each case, small gains add up over time. You don’t need heroic sacrifices that stand a good chance of failing. Just invest a small effort each day and let the benefits accumulate. That’s the magic of compounding.
The complete article can be found at https://getpocket.com/explore/item/the-rule-of-compounding-why-small-steps-lead-to-big-gains?
Also see “The Rule of 72: Definition, Usefulness, and How to Use It” by Will Kenton (https://www.investopedia.com/terms/r/ruleof72.asp).