When I was a child, I used to go to my grandmother’s (nani) house every summer for two months. I loved going there – firstly, because I could play there all day long, and secondly, because my grandmother used to tell us stories every night before we went to bed.
She only had a limited number of stories, but still, I loved hearing them from her repeatedly. A few have stuck with me over time, and one of them goes like this:
A king was fond of music, so one day, he asked his ministers to get the best singer in the town to sing for him. All of his ministers worked extremely hard, found the best musician in the city and he sang for a personal concert for the kind. The king was delighted and overjoyed.
The king was so impressed with the performance that he now wanted to hire the singer full time in his council, but the singer hated the idea. He wanted to be free, sing songs in new cities, travel, and explore the world. So the king made him an offer – “You could ask for whatever you want”, he said.The singer was smart. He didn’t want to join the council but he didn’t want to offend the king as well.
So he created an 8 X 8 chess board on the ground and numbered them from 1 to 64. He said that he would join the council if and only if the king could give him rice that could fill all the boxes on the chessboard. To fill them though; you’d have to do it in a fashion so that in the box numbered 1, it has 1 grain of rice. In the next box number 2, it has twice the rice of the previous box (box number 1) i.e., 2 grains of rice, in the next box, numbered 3, it has twice the grains of the previous box (box number 2),i.e., 4 grains of rice and so on till the last box.
The king, smiling that he’s got a good deal, agreed immediately. He instructed his entire council of ministers to collect rice, wherever they could find in the whole town. Ministers started filling the boxes instantly and obediently. Till 25th box, all was going good, but around 30th box, they started to smell the problem because by 30th box, the entire storage of the king’s palace was empty. They’d just started filling the 33rd box when the stores of all ministers’ houses were empty, and then it dawned upon them what was happening. They soon realized that they’re never going to fill all the boxes.
The singer had the final laugh because he understood the power of compounding, and he left the palace to live his life happily.
Now, as I’ve learned in life, compounding is the most powerful law in nature, which is not so intuitive to a fresh set of eyes.
What is Compounding?
Compounding essentially says that small contributions over a long period can give substantial returns.
You might have heard about compounding in investing. If you haven’t,
let’s take an example to understand its power - let’s say you invest Rs. 20,000 out of your first salary at the age of 22 in a stock which
gives 20% annual growth.
This is how your money will be at the end of 10,20,30,40 years (i.e., when you’ll be 32,42,52,62 years old) –
At the age of 32 & 42, you’ll have Rs. 1.23 Lacs and Rs. 7.6 lacs. But most of the benefits of compounding are seen at the end - at the age of 52 & 62, you’ll have Rs. 47 lacs and Rs. 2.93 crores, respectively. Yes, 2.93 crores. That’s how fast it escalates towards the end.
But money is not the only thing that compounds. In fact, most of the essential elements in life compound.
You’ve got to spend quality time with a small number of super-smart people, and over time, it adds up.
Have a few deep relationships with brilliant people rather than having a lot of shallow ones.
In the age of over-networking, where you name drop people in every
conversation, having less, but deep relationships is a challenging thing
to do. But it is helpful in the long run. As Naval also says,
“Play long term games with long term people”
Skills & Learning Compound
It’s common knowledge now that going to the gym 1 hr/day for six months bears more fruits than three weeks of intense 5hr/day training. Build important habits of doing small tasks daily rather than doing in large chunks but occasionally.
If you get 1% better every day at whatever you do, you’ll get 37 times better at it over one year.
To wrap it up, compounding is the most powerful force in the world. Thus, try to ensure that you understand it and derive benefit from it. As Albert Einstein said
“Compounding is the eighth wonder of the world. He who understands it, earns it..he who doesn’t..pays it”
Previously published at https://rhythmgupta.com/2020/08/04/compounding-the-eighth-wonder-of-the-world.html