Principle of compounding is well known terminology in the financial world. If you search for “Compounding” in google, all the top searches that appear are the articles from the financial industry - primarily related to investment of money. It is a well known strategy, advised and practiced by financial professionals for exponential long term growth.
From investopedia, Compounding is the process in which an asset’s earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will generate earnings from both its initial principal and the accumulated earnings from preceding periods.
In simple terms, the principle of compounding can be defined as the process where the small effort made over a long period of time at regular intervals, can result in significant benefits.
Even though, principle of compounding is generally referenced in the financial world, it is applicable in many other areas of life. Let’s look at some of those.
Take a simple example of brushing your teeth. To keep good oral hygiene, it is recommended to brush your teeth at least twice a day. And you probably have been doing it since you were very young. If you skip brushing a day or two, it probably won’t cause any harm. However, if you don’t brush for a month, it is going to impact your teeth and overall health. You can see the principle of compounding in play here. Small investment (brushing teeth) at regular intervals (twice a day) over a long period of time (lifetime) can have a significant impact (good health).
If you are in a love relationship with someone, be it your girlfriend, boyfriend, spouse, child, or your parents, and if you are asked what is one or two things you did which is making your relationship going strong? Probably you won’t have an answer. Nobody has. Because it’s not a one thing, or one gesture, or one instance which made your relationship strong. It’s those little things which you have done over the period of time, knowingly or unknowingly, which by itself may not have much significance. But, over a long period of time it has accumulated and created a huge impact in your relationship to keep it strong. The compounding effect of small little things have made a significant difference over a long period.
As a kid, you might have heard from your parents or teacher that you need to solve at least 1 math problem daily, or read at least 1 paragraph or chapter daily. At that time it seemed like a punishment or insignificant task. But, if you think about it now, keeping the perspective of compounding, you can see that doing that daily task was insignificant on its own, but when done regularly over a period of time created a compounding effect and therefore made a significant difference in improving you in that subject.
What is the problem?
From all the above examples, you can see that that principle of compounding is very effective in every area of life, be it finance, health, relationship or personal development. Then, why do most of us not follow or apply this principle explicitly in the areas where we want to see significant results? The answer is simple. Because we are impatient. We want instant gratification. We want to see instant results. And if we don’t get that, we think that it’s not working, it’s just a waste of time and we give up.
How many times have you taken a resolution to exercise regularly but couldn’t keep up? It’s because when we start going to the gym, we start with motivation. Motivation which is triggered by an external element with a specific goal in mind - to lose weight, to look slim, to build stamina, etc. Initially, our level of motivation is high and we keep going to the gym regularly. After a few days or weeks, we expect results. As with our motivation, our expectations are high as well. And when the results do not meet our expectations, we get disappointed. We believe that it’s not working out and we drop out. But, the reality is, it has been working out, it’s just that you cannot see the results in a short period. You have to give it some time. You have to believe in the principle of compounding and let yourself give some time to see the effect.
I hope with all the examples I mentioned above, you can see that the principle of compounding is real. It is applicable in every area of life, and in every work you do. It can make a significant difference in your life and can help achieve anything you want. All you need to do is believe in it and continue to unturn one stone at a time, in the right direction.