Wealth Is Built on Compound Interest

Money, Skills, Wisdom & Happiness – these are the four most important pillars of a wonderful life.

Similarly, like your car requires regular maintenance for better performance, these pillars require regular maintenance too.

But how Money, Skills, Wisdom & Happiness can be maintained? Well, It’s all about how you compound them.

Yes, Compound Interest as we call it in a mathematical term is often referred, as the 8th Wonder of the World.

Why Compound Interest is referred, as the 8th Wonder of the World? Well, let me share with you a story of the King who granted a wish of one of his Poet, considering his wish as Small.

If you understand Hindi, you can watch this video to know the story…

In this story, the king was impressed by his poet and asked him to ask whatever he wants, poet looking at the chessboard asked the king for 1 rice seed on 1 box of the chessboard, and asked him to double with every box up to the 64 boxes of the chessboard.

King considered this as a very small wish and granted him by saying just rice? not gold or anything?

After the counting started from 1 rice seed to 2 then 4 then 8, it ended up to 512 rice seeds at 10th box and it became 5,24,288 seeds at 20th box and while coming just at the half at 32nd box the rice seed counting came to 274 Crores & 74 Lakhs.

Once, King realized the power of doubling seeds he ended up losing his entire kingdom to that poet.

This is the Power of Compound Interest.

Similar to this in our life to create Wealth, we need money, for money we need skills, for skills we need wisdom, and wisdom can be attained if you are internally happy.

So, these four most important pillars will build wealth for you and you need to compound them regularly in your life be it Money, Skills, Wisdom & Happiness.

RULE of 72

In the above story, we saw how rice seeds were being doubled for every box, but in real life, we must know at what time our money will double if we invest in any product.

For this, we need to enlighten ourselves with the concept or rule of 72

Rule of 72 tells us how much time it will take to double our money, the formula goes like this,

Time = (72 / Rate of Interest)

For example, You Invest Rs.10 Lakhs in Bank FD that returns 7 percent compounded annually.

= 72 / 7
= 10.28 Years

Then it will take approx. 10 Years to double your money.

Let’s take another example: You Invest Rs.10 Lakhs in Equity Mutual Fund that returns 15 percent compounded annually.

= 72/15
= 4.8 Years.

In this case it will take approx. 5 years to double your money.

Note: These are hypothetical examples and not guarantee or assurance of any returns on bank FD as well as mutual funds.

How Many Doubles You Will Get In Your Life?

We have understood compound interest, and Rule of 72 to understand how much time it takes to double your money, now say you invest for 50 years in your whole life.

If you invest in Bank Deposits with returns of 7 percent as per Rule of 72 you will get approx 5 Doubles means Your Rs.10 Lakhs will turn into Rs.1.6 Crores.

Similarly, if you invest in Equity Mutual Funds with returns of 15 percent as per Rule of 72 you will get approx 10 Doubles means Your Rs.10 Lakhs will turn into Rs.57.6 Crores.

That’s a difference of more than 55 Crores. This is how better returns can do miracle with their compounding in same time period.

So, chose your asset wisely invest in different asset classes as per your risk profile as well as asset valuation.

Note: These are hypothetical examples and not guarantee or assurance of any returns on bank FD as well as mutual funds.

If you want to know where & how you should invest to create wealth in your life, you can schedule a One-on-One meeting with Me, Click: gurpreetsaluja.com/consult

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