Power Of Compounding...
Albert Einstein, besides commenting on a host of other things has also written something about Compounding... He's quoted it to be the Eighth Wonder of this world..
Some of my friends keep quipping about my stingy nature which is totally against all natural instinct and urges which characterise my age.. But I would like to humbly differ in my thought process and strongly believe in the concept of delayed gratification.
Little do they know or rather I would say appreciate the power of this mysterious, but elementary concept of COMPOUNDING..
Consider 2 scenarios here :
Scenario 1 : A person "A" saves 100 dollars every month ever since he's 25 years right through till 35 years ( 10 years in all). Assume the rate of interest for his money is 8 %. After 35 years of age, he does not save a penny and checks out his money when he turns 65. It so happens that this money due to compounding would have grown to around 200,000 dollars.
Scenario 2 : A person "B" saves the same 100 dollars, but starts saving only when he's 35 years old and starts saving all the way till he turns 65. ( That means, he saves dilligently for 30 long years....). Assuming the same rate of interest as the previous case. Now what is the total sum of money when he turns 65 ?? It turns out to be close to 150, 000 dollars. Additionally Mr B has also contributed 24,000 dollars more than Mr A since he's been contributing for 30 years as opposed to 10 years by Mr A.
So, we have an interesting scenario wherein in spite of contributing less, Mr A's net worth when he turns 65 happens to be a whopping 50,000 dollars more than Mr B.
The secret of Mr A's success has been that he's started to save 10 years earlier than Mr B and that in short is called as " Power of Compounding"... The earlier you start, the better it is..
Additional benefits in the process is the fact that after 35, Mr A does not save even a penny while Mr B has to conciously set aside a portion of his money for savings.
Here's a link to an article from Rediff.com also giving more details and illustrations of the power of Compounding...
Some of my friends keep quipping about my stingy nature which is totally against all natural instinct and urges which characterise my age.. But I would like to humbly differ in my thought process and strongly believe in the concept of delayed gratification.
Little do they know or rather I would say appreciate the power of this mysterious, but elementary concept of COMPOUNDING..
Consider 2 scenarios here :
Scenario 1 : A person "A" saves 100 dollars every month ever since he's 25 years right through till 35 years ( 10 years in all). Assume the rate of interest for his money is 8 %. After 35 years of age, he does not save a penny and checks out his money when he turns 65. It so happens that this money due to compounding would have grown to around 200,000 dollars.
Scenario 2 : A person "B" saves the same 100 dollars, but starts saving only when he's 35 years old and starts saving all the way till he turns 65. ( That means, he saves dilligently for 30 long years....). Assuming the same rate of interest as the previous case. Now what is the total sum of money when he turns 65 ?? It turns out to be close to 150, 000 dollars. Additionally Mr B has also contributed 24,000 dollars more than Mr A since he's been contributing for 30 years as opposed to 10 years by Mr A.
So, we have an interesting scenario wherein in spite of contributing less, Mr A's net worth when he turns 65 happens to be a whopping 50,000 dollars more than Mr B.
The secret of Mr A's success has been that he's started to save 10 years earlier than Mr B and that in short is called as " Power of Compounding"... The earlier you start, the better it is..
Additional benefits in the process is the fact that after 35, Mr A does not save even a penny while Mr B has to conciously set aside a portion of his money for savings.
Here's a link to an article from Rediff.com also giving more details and illustrations of the power of Compounding...
posted by Chandrashekar | 6:37 PM
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