We have often heard about the 8th wonder of the world which is the Compounding Principle..giving flesh to the saying that Little Drops Of Water Make A Mighty Ocean. And, yes slow and steady really does win the race in the world of finance.
We hear this, say “hah huh”, nod our head in agreement and continue with our lives. The question is if we remember to practicalize this in our life
In conjunction with this and to motivate us to embrace this magical phenomenon, we have the “Rule of 72.”
The rule of 72 is a method for estimating an Investment Doubling Time. The rule number is divided by the interest percentage per period to obtain the approximate number of periods required for doubling
Supposing you’re 20 and have ₦20,000 in savings. You invest it with average Return On Investment -ROI- of 10% per annum.
Using the “Rule of 72”, divide 72 by your percentage return. This gives how many years it takes for your ₦20,000 investment to double. this means that, every 7 years. your investment value doubles.
if you invested at age 20, then, at 27 it compounds to ₦40,000. At 34, ₦80,000. At 41, ₦160,000. At 48, ₦320,000. At 55, ₦640,000. And at 62, ₦1,200,000.
Clearly the earlier you start investing the faster you become a millionaire. and of course the higher the rate of return the faster you reach the promised land.
we are all familiar with the arithmetical formula that says that..
INTEREST = PRINCIPAL X RATE X TIME / 100
Of course you could have blown that 20,000 naira on some exotic earpiece and tell yourself “I am still young I have time”.
I have bad news for you… for every delay in starting your investment plan, the impact of procrastination compounds negatively.
Meanwhile many of the fluff that young people blow their money on have no enduring value and will be totally worthless in a few years but the money invested today will be like a tree planted in fertile soil that will yield fruits for years to come. You can then use those fruits to purchase whatever you wish later on
Delayed Gratification Anyone?
A naysayer says,
Are you saying the stock/capital market or other factors have no affect on those returns? Is there any investment vehicle that really works with mathematical precision like that?
Of course not.
This is just to teach a principle… the principle of delayed gratification and consistency with investment, and not eating the fruits of your labour too early.
Of course there has to be a balance since nobody knows if tomorrow will even come. but if you perpetually live like tomorrow will never come, then you will truly have no tomorrow
An Uzoxhukwu, being 25 years old, buying a phone for 75k when he probably has little or no investments can benefit if he internalises this lesson..
For the very young ones who still have time on their hands getting to financial freedom just needs consistency with their Investments (rather than wasting money on things of little value) and determination.
Remember to Invest your money In Guns (things of lasting value) Rather Than In Butterb- and do it and continue doing it.. as early as possible.
Time Is Truly Money.