Categories: Business, Productivity, Success

Einstein called it, “the greatest mathematical discovery of all time.” It’s the reason that rich people get richer, and indebted people get more in debt. It’s called compounding – a simple mathematical concept that can revolutionise your finances.

Imagine that you were standing in the middle of a road, and you jumped a metre. Next, you jump two metres. Next, four. You continue to double the distance you jumped previously. How many steps do you think it would take you to jump around the World? A few hundred? A few thousand?

The answer is just seventeen. Twenty would get you well past the moon. The reason that it doesn’t take as long as you would think is because of compounding – numbers building upon numbers.

Take your bank account, for example. If you put £1,000 in a bank account and it grew at, say, 10% per year – at the end of the first year you would get £100 interest. Presuming you kept that in your bank account, the next year you would get £110 interest – because you are also earning interest on the interest you earned last year. The next year, £121. Each year, you get more and more. It would take just over seven years for your money to double. After twenty years, you would have over £6,500.

It also works in reverse. If you owe money, the amount you owe can grow dramatically. In most cases, you will pay more interest on your debts than you will earn on your savings, so the results can be much more significant.

Compounding is an important concept to grasp. It allows you to let the money you have already earned keep on earning again and again.

And it doesn’t just work with money. If your business was growing, and you were getting short of time, you could hire someone to help. That person frees up your time, so you can produce more. With money money coming in, you can hire more people to free up more time, enabling you to grow the business even more… and so on.

Or if you launch a new product, and you tell four friends about it. Each of them tells four friends, and they go on to tell another four. In just a few days, this chain has led to thousands of people knowing about your product.