Compound Interest
Small, consistent gains accumulate exponentially over time.
What It Is
Compound interest is the principle that when you earn returns on an investment, those returns themselves generate additional returns over time. This creates exponential rather than linear growth. The concept applies beyond finance to any area where small improvements build on themselves: knowledge, skills, relationships, and habits.
Why It Matters
Understanding compounding helps you appreciate the power of consistency and long-term thinking. Small advantages compound into massive differences over time. This is why starting early matters so much, whether in investing, learning, or building habits. It also explains why small negative habits can be so destructive over time.
How to Apply It
- 1
Start as early as possible to maximize compounding time
- 2
Focus on consistency rather than intensity
- 3
Reinvest gains rather than consuming them
- 4
Be patient—compounding is slow at first but accelerates
- 5
Apply the concept beyond money: compound learning, relationships, health
Example
If you invest $10,000 at 10% annual return: after 10 years you have $25,937; after 20 years, $67,275; after 30 years, $174,494. The same principle applies to reading: reading 30 minutes daily seems small, but over a year that's 200+ hours and potentially 20-30 books, dramatically expanding your knowledge.