Mini Blog Series 4: The Power of Compounding (Part 1)

I came across two amazing articles yesterday and when I thought about the two ideas in conjunction with one another, it was a mini “Eureka” moment for me. And it’s definitely an idea worth sharing. Hence this article. But before that, I want you to take a moment to choose one of the following options with the utmost honesty and also think of the reason behind your choice.

1. You have a job of $ 200,000 per annum while everyone around you has a job of $ 150,000 per annum.

2. You have a job of $ 250,000 per annum while everyone around you has a job of $ 300,000 per annum.

Obviously, the socially acceptable response is option 2 because you shouldn’t care about what others are making, and since you are earning more in the second scenario you should choose that. Besides, you don’t want to come off as a jealous person. But as a matter of fact, we as human beings are always comparing. We naturally feel bad, even if momentarily, when a friend gets a higher bonus than us. And even if we know we shouldn’t feel this way, we inadvertently do.

Don’t worry this is not a philosophy article on how you should get over these petty feelings. (Because I don’t think I am that enlightened yet. I would like to be someday, but am not yet). I just want to tell you why it’s actually better to choose option 1.

Remember the concept of compound interest that was taught in middle school? Say you start with INR 100 and get an interest of 10% compounded annually. Every year the interest compounds as it is a function of how much money you already have. Hence, the more you have the more you get. Now coming back to our question from before. I will choose option 1 because I know that even at the same growth rate I would make more than others.

In the same way, the idea of compounding can be applied to many aspects of our life, health, relationships, experiences, knowledge, etc. What really intrigues me is how I can apply the idea of compounding to increase my knowledge base. Hence, I make an active effort to learn new things from books, people, videos, articles, etc. But just gathering and consuming information does not equal compounding knowledge. And that’s what we will talk about in the next blog.