The Most Powerful Force In The Universe

---------

According to Albert Einstein, the most powerful force in the universe is compound interest. How can a great man of science speak so highly of a mathematical and economic concept? Surely, there must be a reason behind this claim and I’ll try my best to explain it here.

Right from the very beginning of our lives, exponential growth (my personal term for the concept of compound interest) is already working for us. Inside the womb of our mothers, we all started as a single fertilized cell. That cell splits into two within 24 hours and those two cells would again divide to become four. Through this continuous process, that single cell eventually grows into a human baby composed of billions of cells in just a span of 9 months.

That is just one example of how exponential growth affects our world. Of course there are many other theories whose foundation was built through the concept of geometric progression. This includes the creation of the atomic bomb which Albert Einstein once theorized to be possible through a massive nuclear chain reaction. Perhaps this was the reason why he claimed that compound interest is the most powerful force in the universe.

But now, we should concern ourselves on how we can apply this tool into our financial life. How can we accumulate wealth exponentially and become rich?

The first step to harnessing the power of exponential growth is to understand the three factors that affect it. These are the amount of input, the rate of growth and the number of cycles.

Input
This is your starting investment. The higher your initial amount, the faster it will grow.

Rate
This is the rate at which your input grows. Likewise, the higher the rate, the better.

Cycle
This is the number of times that the process of growth is applied. The more cycles you allow, the higher your earnings.

Once we understand how these three work together, then we can furthermore study how we can control them. And once we have learned this, then our paths will be set towards financial freedom. So the question now is, what can we do to harness the power of exponential growth?

• Consciously save money that you will use to invest– track your expenses and pay yourself first. (Input)
• Increase your financial literacy– learn how to invest and discover the right investment for you. (Rate)
• Be patient, let your money grow– make time your ally and learn how to delay gratification. (Cycle)

To receive more articles about wealth and personal finance, subscribe to Ready To Be Rich.

———
Photo courtesy of Giuseppe D.

---

Posts You Can Read Next:

Should You Save Money If You Have Debts?
Should you set aside money for your savings if you have debts you need to pay? My straightforward answer is YES. But wouldn’t it be wise to pay all your debts first (specially credit card debts) and then work on your savings afterward? By doing this, you’ll pay less on interests and you’ll get to eliminate your...

The Principle of Leverage And How To Use It In Our Life
What is leverage? What does it mean and why do a lot of finance experts use this term often? How important is it when it comes to money, business and wealth? I first encountered this term in my high school Science class when we were studying about simple machines. That day, we talked about seesaws, fulcrums...

Random Thoughts and Learnings From The Money Summit and Wealth Expo
Last weekend was a truly inspiring and educational experience for me as I attended the two-day Money Summit & Wealth Expo 2010. Never mind that I still haven’t fully rested from my Leyte trip, the energy of the speakers and the attendees were enough to fuel me throughout the event. As I browse through my notes, I...

This entry was posted by Fitz Villafuerte on Friday, May 9th, 2008 at 9:48 pm and is filed under Mindsetting. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. If it's your first time to comment here, they will be held for moderation. Off-topic responses may be deleted.