The Magic of Compounding - The Rule of 72 that doubles your money fast

Convert $10,000 to 4 million dollars by a simple investing rule.

Watch the video to understand what experts call "the eighth wonder of the world" - compounding - the rule of 72.

Rule of 72 says:

if your money is invested at r %, it doubles in 72 / r years.

If you invest $10,000 at 6% in doubles in 72/6 = 12 years.

$10,000 invested at 8% doubles in 9 years.

$ 10,000 invested at 24% doubles to $ 20,000 in 3 years.

Do this calculation for 36 years (your average working years) and see what happens!!!

What does getting wealthy mean to you?

“When does it end?”

“Oh my my my. Abhijit is getting philosophical now” remarked Ravi.

They were sitting at the poolside of Kadkani Resorts in Coorg, near Bangalore. Their batch mate and good friend Gopal Kulkarni was one of the owners of Kadkani Resorts. Nice cottages and a lovely golf course too. Gopal was worried whether they would pay for the rooms at all, they had asked for a 100% discount. The wives had gone to the main market to buy local coffee powder, Coorg’s speciality. It was late afternoon, there was a cool breeze blowing. The resort was tucked away about two km from the main highway and was in the lap of nature and luxury.

“At IIM Bangalore, none of us had any vehicles. To do projects, either we travelled by auto or had to borrow bikes from others. Then we joined companies. Within two years each of us had bought our first cars. One or two years back, you three have already sold off your first cars and bought C segment cars. I have wanted to buy a new car for a year now. One month I like a car, next month another car gets launched, then a new SUV comes into the market, it never ends” said Abhijit

“Why should it? I plan to change my car every two years. I can afford it” said Rajesh.

“Did you pay cash for it?”

“No of course not. Are there people in the world who pay cash for a car? I picked it up on a loan from a private sector bank”

“So what you mean is that you can afford to take a loan for it” clarified Abhijit.

“If you mean, can you afford to pay the EMIs, of course I can. I mean everything that we buy is on loan. My house is on loan. My TV is on loan. We took a loan and went on holiday to Europe last year. We can afford to pay the EMIs, we have not defaulted so far”

“Your wife Nalini also works, right. So this lifestyle and expenses you can afford because you are dinks?”

“Dinks?”

“Double income no kids”

“That’s a good one.”

“What happens when you guys decide to expand your family, have kids? Nalini will have to take a break. That means you will have to fund all this alone. Wouldn’t that put a little strain on the finances?” asked Abhijit

Rajesh kept looking at Abhijit for a long long time.

“What is the point you are making?”

“I am not so sure myself. All I am saying is that we spend with the assumption that the money will keep coming every year. Each of these expenses we make however only give temporary satisfaction. I think I was far happier when I was in college. Today I have a big house, a car, and every conceivable gadget in the house, we take holidays across the world and I am not exactly happy. And to top it all, I am increasingly getting dependent on my salary.” Said Abhijit

“Why will the money not keeping coming?”

Excerpt from Chapter two of the book "Young Leaders at Every Level". Click on link on top to buy this book NOW

The link between wealth and health

We spend half our lives trying to earn money losing our health in the process and the other half of our life, we then lose the money trying to regain our health.

Young Leaders make themselves indispensable.

Young Leaders learn multiple skills which enable them to take on additional assignments at higher levels in a company.

Read the full HBR article here

Discover your passion

Excerpt from the book "Young Leaders at Every Level" - Chapter One - Discover your passion where three friends Abhijit, Ashutosh and Ravi are discussing their career choices......................

“Congratulations. You quit your job, I didn’t know that. What do you do now?”

“I quit my job in the mutual fund about three months back I am now a freelance financial advisor myself. This was one of the finest decisions I took, not succumbing to the pressure, doing something that I enjoy doing”

“Doing something that you enjoy is being in heaven, liking what you do is happiness” said Ravi wishfully.

“I happened to be surfing one evening on YouTube and chanced upon this video of Steve Jobs giving a speech at the convocation ceremony at Stanford. He says life is too short to waste living other people’s priorities. Your work takes up the bulk of you waking day, you have got to love what you do and do what you love. As in all matters of the heart, you know it when you find it.” said Ashutosh.

“I was surfing one day and came upon this article on “Discover your passion”. The website belonged to a business consulting company which works on productivity improvement. Some interesting points were mentioned in the article. It said - most of us live life in two compartments. One compartment is the Monday to Saturday one which we do because we need the money, we need to pay our car and home loan emi’s; we need to pay for what we buy at lounges and malls and ice creams. The other compartment is the weekend, the holiday routine. This second compartment is what gives us joy, satisfaction, happiness. Spending time in this compartment energizes us, revitalizes us.” said Abhijit.

“I am certainly living my life in two compartments right now” said Ravi.

“Why do we need to unwind over the weekend – because we are so wound up the whole week?” said Ashutosh.

“Hey that’s not true. I enjoy my banking job” said Abhijit. “And I love to enjoy a drink with friends over the weekends”.

“Good for you” said Ashutosh. “Most of us in the world live life in two such compartments, but not all. There are some notable exceptions. Cricket commentator Harsha Bhogle for e.g. let me ask you this question “what is similar between Harsha and all of us?” Pat comes the answer – “we all love cricket, we all talk about cricket, etc”.

“The next question “what is the one major difference?” He gets paid for it, we don’t. And that my friends is the key to happiness. Harsha Bhogle is an MBA from IIM Ahmedabad. Most of his batch mates complain about being stuck in the corporate ladder.”

“I don’t know how to say this, but frankly I get bored of watching cricket. I consider it an incredibly monotonous game which has too little action” said Rajesh.

Ravi said “your company is one of the biggest sponsors of the event”

“I know”.

“So what is the secret to happiness then?” asked Abhijit.

Ashutosh replied “The secret to happiness is therefore to “Discover our Passion” and then find a bunch of people in the world who will pay us to do exactly what we are passionate about!!!!!”

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