How the gods favour long-term – The story of compound interest

By Thabang Mapena (Guest Post)

68
Photo by rawpixel on Unsplash
Photo by rawpixel on Unsplash

I love beans. No one chefs them up like my wife does… she makes them sweet, sour, sharp, chilli, creamy, salty. I have seen my wife put more things in her bean soup than the number of official languages spoken in South Africa. Google dietitians have given beans a nod too, more especially for my blood group. Me and beans equate to a match made in heaven.

This explains why it was hard for me to dodge the temptation of using a bean analogy to drive home financial point below.

Let’s take a trip down the agriculture park;

Beans are only produced once a year, they are per-annum yields. Assume a single pod of beans contains about 7 beans and a single adult plant gives out 8 pods. Now, if you were to sow a single seed in one season you would harvest an adult plant with 8 pods in autumn- which is equals to 56 beans; a fraction of beans needed to dish up a single serving of a nice winter soup. Nature would then dictate that you wait another year for a sizable soup.

Year two; the sowing season would see you start with 56 seeds in the ground. Assuming that all goes well- temperatures, rains, soil, and fertilisers all good, you would have 56 healthy adult plants ready to give out 8 pods each with an average 7 beans per pod. My maths says your autumn harvest would be nothing less than 448 pods or 3136 beans and my gut says that can give a very decent number of servings. Too much beans right? Wait until we get to the fifth year…

Retaining all the 3136 seeds from second year and sowing them all in the 3rd year could give out 3136 plants, 25 088 pods and a well over hundred thousand beans. Ignoring the bean famine another year and retaining the 3rd year harvest and sowing the whole package in the fourth would give out 170 516 plants, 1 404 928 pods and….yes close to 10 million beans wow…point made here.

Now the same principle works with money too…the longer the money is put away (well, invested of course), the more money it makes. Compound interest or interest on interest, compounds, multiplies, reproduces, replicates, swells, and proliferates the principal or any initial sum invested over a fixed period of time.

It goes without saying that the gods favour compound, why shouldn’t we?

Now, take this ; delay gratification a bit and put your money away. Watch out for the weeds and keep watering it. Start early and make money. Long-term is magical. The gods favour it!

Comments