The biggest lesson in personal finance is to understand and internalize the concept of power of compounding. One of the famous example to understand this is through the story of the King and the Chessboard.
When asked by the king to choose a reward, the inventor of chess asked for one grain of rice on first square, 2 grains on second square, 4 grains on third square, 8 grains on fourth square and effectively doubling the number of rice grains on each subsequent squares until the 64th square is fulfilled on the chessboard. The king thought it to be a small sum and readily agreed. But in reality, by the time one gets to the 20th square, the number of rice grains required is 1 lakhs and by the 40th square 1 billion rice grain is required.
Well, that's the power of
compounding, which explodes exponentially in the long term.
A different story imparting the
same lesson is about a vampire who in order to survive needs to drink the blood
of 1 human every month. The catch is that every human he infects also becomes a
vampire himself. So, at the end of the month there are 2 vampires looking for
human blood for survival and 4 vampires at the end of next month and 8 vampires
in subsequent month looking for human blood.
The entire human population on planet earth turns into vampires approximately by the 33rd moth. That is the power of compounding as times goes on. This also tells us that there are no vampires in the world.
Enjoy the stories but don't forget to internalize the lesson, invest now with a view to see exponential growth in your money not today, not next year, but in 15 years from now and you will be firmly set in your wealth creation journey.
