Do you feel this way:
Every day is very hard, very busy, very tired, but feel that life is a mess;
I also try to work overtime, work, and live every day, but I still feel that I am poor.
Do you want to know why this is and what is wrong?
Work is right, life is right, effort is right, but it lacks a magic weapon called "compound interest thinking", and compound interest thinking is the underlying code that helps ordinary people achieve wealth growth.
Today I will take you to re-understand the thinking of compound interest, master this wealth code, you will find that financial management to make money, personal growth is far easier than you think.
Remember to like the collection first, otherwise you are afraid that you will not find it when the time comes.
What is compound interest? To use economics, it is the amount of money we invest that can receive interest dividends year after year
When you reinvest these gains, they also generate additional gains. Such a phenomenon of money making money and rolling profits is called compound interest.
For example, if your friend Xiaohua wants to buy a house, ask me to borrow money.
I said I could lend her $600,000. The conditions are very simple, starting from next month, Xiaohua only needs to return 6 yuan to me first, and every month after that, it only needs to pay 5% more than the previous month, and continue to repay for 20 years.
That is to say, the first month is repaid 6 yuan, the second month is repaid 6.3 yuan, and the third month is repaid 6.6 yuan, which is repaid in 20 years in this way. Is it you, will you agree?
Agree to reply 1 in the comment area, disagree can reply 2.
If Xiaohua does not understand what is called compound interest, thinks that it is easy to pay 6 yuan per month, and agrees to my conditions, then in these 20 years, she will have to pay me a total of 14.4 million yuan.
For me, I made a very good deal. Xiao Hua fell into a trap that seemed extremely terrifying in hindsight. She only borrowed 600,000 yuan from me, but had to pay 13.8 million yuan in interest, while I only invested 600,000 yuan and earned 13.8 million yuan.
Do you think that this story seems to be very familiar.
We took out a loan to buy a house, and it seemed that the bank was the one who lent us money and said, "Don't worry, there are 20 years to slowly repay the mortgage."
Why is compound interest so powerful?
Let's take a look at a few diagrams:
Did you find it? Whether it is the growth of the world's population, the growth of the world's GDP, or the wealth growth of the rich, they all follow the mathematical power law, first slow and then fast, more and more, which is the mathematical compound interest formula.
Don't you understand? It doesn't matter, I use the case of making money from investment to help you understand:
If you change the expression, it becomes the following formula.
That is to say, there are three factors that affect the investment money: the principal base, the annualized rate of return, and the investment period.
If we want to make money from financial investment, we must make these three factors play to the extreme.
The first element is the accumulation of principal.
This is also the reason why we have repeatedly emphasized saving money The hardest thing in life is to accumulate the first pot of gold, which requires ability, and even more needs self-control.
There is a story that there is a wet market in India, and the vendors in the market will borrow 1,000 rupees from the local rich people every morning to buy goods, and if there is no accident, all the goods sold that night, they will receive 1100 rupees.
The 1,000 rupees is the principal, of the remaining 100 rupees there is 50 rupees of interest, and the last 50 rupees is the profit they earn
In fact, as long as these hawkers save even 5 rupees a day for the next day's purchase, due to the compound interest effect, about 50 days, they no longer have to borrow money from the rich
But the researchers found that no peddler would do that because life had exhausted all of their energy, causing them to be very short-sighted, and the hard-earned Rs 50 rupees were used for living expenses, entertainment and other expenses.
In fact, many of us in life are like these vendors, we spend the money we earn. Waste your time at will and never do goal planning
Having said the principal, let's talk about the annualized income.
We know that in the investment world, the most awesome is Buffett, whose long-term annualized return is more than 20%, which is what we know as a brilliant investment achievement on the planet.
So those whose investments are doubling at every turn are not saying impossible, just saying they are not sustainable. The most frightening are large drawdowns and losses.
For example, 100W loss of 50%, become 50W, to return to 100W need 100% of the return, so the first bottom line of financial investment is not to lose, to keep the principal.
The third is the investment period.
In fact, it is a sentence - do not wait for early investment, rest assured to wait for 10,000 years. Investing early can maximize the power of compound interest.
For example, 1W yuan, annualized return of 20%, investment for 30 years, the final return is 237.37W; and if you postpone the investment for 10 years, the same annualized rate of return, the amount of principal needs to be 6 times the former, the final return is 7W less than the former.
So don't think that you don't have much money to give up financial management, under the effect of compound interest, small money can also become big money.
The same is true when it comes to personal growth. There is a word called "bamboo law".
Bamboo usually only grows 3 cm in the first four years, and these 3 cm are still grown under the soil. From the fifth year onwards, bamboo can be grown at a rate of 30 cm per day.
In just 6 weeks, it can grow to 15 meters.
How many people can survive the first 3cm?
Just like bamboo, when it is below the horizon, it will extend its roots in the soil for hundreds of square meters, constantly preparing and accumulating for the future, this process takes 4 years, during which it only grows 3 centimeters.
Finally, it reached its own milestone, and the moment it broke out of the horizon, it began to grow at a crazy speed of 30cm per day, 6 weeks, and grew to 15 meters high.
You will find that all the adversities we encounter, the grievances we feel, and the unhappiness we feel, are actually because you are still under the horizon.
This is also known as the darkness before dawn. For a long time before the horizon was broken, the money you earned was actually small money, and the key was your accumulation and growth.
If you believe in compound interest growth, you firmly believe that your future is like that slow first and then fast. Then all you need to do is keep evolving yourself and sticking to the right thing.
Keep patience and original intention, be a friend of time, then you don't have to worry about not making money in the future.
The vast majority of people overestimate their short-term outbursts and choose to underestimate their long-term growth.
When you start to act, the benefits will slowly become larger, and one day you will complete the leap from quantitative change to qualitative change, which is the power and charm of compound interest.
The sooner you start accumulating principal, the sooner you know the truth and law of compound interest, and the less you will take detours.
This is true of financial management, and it is also true of job growth.
Have you ever experienced compound interest? Feel free to leave a message in the comments section.
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