Einstein’s Eighth Wonder of the World

One thing that frustrates me most is how easy it is to become wealthy, but how hard people can make it seem.

The other reason is people want it NOW, and in doing so they end up getting it NEVER.

People get easily disheartened by the smallest challenges and sell their portfolio.

So, let me share how simple this can be with a choice…

Would you rather $1 Million in the hand now, or 1 cent in your pocket guaranteed to double each day for 30 days?

If you chose $1m now, you just lost $4m!

Don’t believe me? Neither did I, until I did the calculations.

Einstein called this the Eighth Wonder of the World! It’s the power of compound interest, building returns on top of past returns.

What does this show? How would you explain this potential for astronomical growth?

This is a universal law and it exerts its influence on each of us, with no care as to who you are and your life’s circumstances.

It’s up to you to make life’s choices to position yourself where compounding returns work in your favour.

Here are some interesting observations on the power of compounding:

  • Initially, the numbers look abysmal. How boring ….1 cent grows to 5 cents on the 10th day!

  • On the 20th day, the number has grown to over $5,000.

  • On the 30th day, the number has grown to over $5 million.

 

Starting out

You’ve probably worked out that in the real-world money takes a few years to double depending on the returns you get on your money. In real life, the first step is to have enough money to invest.

A good place to start is saving the money and there is no way around it.  Unless you get given the money by a generous person.

So, that’s the obvious stated – you need SOME money to make LOTS MORE money – but how about a real-life sample.

How saving 10% will generate 100-fold return in 30 years

According to the Australian Bureau of Statistics, Australia’s median weekly gross household income in 2015-2016 was $1,616 per week ($84,032 per year).

I was curious to see how the concept of saving 10 % works as proposed in The Richest Man in Babylon (by George S. Clason) i.e. by saving $8,403 every year (using the Prospera Strategic Planning Calculator)

I have applied a strategy called Dollar Cost Averaging where you invest 10 percent every month (in this example, $700/m) and assumed a return of 7% per annum if the money were invested in a diversified investment portfolio.

Here’s what it looks like (for the excel lovers, the details are below)

  • After 10 years, the value would be $126,692.

  • After 20 years, the value would be $368,958.

  • After 30 years, the modelling shows that the value of total savings to be $827,593.

  • After 40 years, the modelling shows that the value of the total savings would be $1,628,000

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Here’s where it gets even better!

If the investment return was 1 percent higher (at 8% per annum), the total savings would mount up to $1,003,511 after 30 years. After 40 years, the total savings double again to $2,166,505.

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Blown away?

So, that’s literally an Einstein-endorsed insight into what you can achieve by simply saving/investing 10% of what you earn.

Ever wonder what other wonders you might be missing?

  1. This is one small part of the ethos of Deep Strategic Planning that I believe in and practise. I ask questions about how wealth can be built faster by sticking to the plan and turning over rocks others don’t. If you’d like to talk with me about any part of why Deep Strategic Planning is simply better, shoot me an email and I’ll share the good stuff.

Disclaimers and assumptions: The Prospera calculator has shown this amount in future dollars and no adjustment has been made for inflation. There are no guarantees, and this is not a prediction.

Zuraida Ariffin