Compound interest

July 10, 2020

Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn't, pays it. - Albert Einstein

I knew about compound interest for a long time but this is the time I finally realized the significance it has in our life.

It's like a double-edged sword, you use it either to win or chop yourself into pieces. The choice is yours.

It is mostly used in the field of finance and especially investing. But fundamentally, it can be applied to everything we do in life.

Everything compounds. Good or bad, it doesn't matter. Your behavior, habits, actions, and consequences of actions(second-order effect) compounds.


Thinking about something? Like what are your interests, what you should choose, how you can make yourself more valuable, how to do a particular thing X more efficiently, or anything in general.

Make use of compounding. 1st you think about it, give it 30 minutes, some of the things start clicking, then after another 20 minutes, more things start clicking. After this session, you seem to understand more, and figured out more. Since you've not figured it out completely yet, you'll again come to the same question. So, the second time, don't waste your efforts, don't start from scratch again. Start from the already build mental model and thoughts.

How to do that?

  • Jot down the conclusions came to for the first time.
  • Start from the same level the second time.
  • Jot down the conclusions you came to for the second time.
  • Keep repeating the process.

By doing this, you're saving your mental energy, time, and efforts. And you're more likely to come to a conclusion far earlier than you're supposed to.

The same thing can be applied to every area of life. And you should apply for it. Doesn't matter whether it's habits, actions, relationships, or whatever.

The idea is simple: Don't start from scratch every time. Make use of pre-built momentum and build on top of that.

Power of compounding vs starting from scratch

Let's see how it can be applied to other areas too.


Try to select your goals/actions along the same lines as your previous goals. That's the recipe for specialization in a particular area.


Read about the one idea/concept. Cool. Make a note of it. Want to read about it again after a few days? Start from the notes you already made and then start from that point.


Invest more in those relationships that are established and mean something to you. Make those bonds stronger.

Related Idea: Matthew effect

According to this idea, advantage keeps accruing to the people with advantages and the tallest tree gets more sunlight which makes them grow fast.

The core of the Matthew effect is the same: Compounding.

You can read more about it here.

Lesson: Starting reaping the benefit of compound interest. Once you'll realize its power, you'll not remain the same after it.