The Power of Compounding: How Money and Skills Grow Over Time

I was an engineer in college. I learned tons of equations. Most of those have no applicability in my day to day life, but this one has been one that’s been incredibly powerful. So what this is, is the formula for compounding money. So Y, the amount of money you’re going to end up with is equal to X, the amount of money you invest times (1+R), where R is your rate of return and N is the number of years you’re going to hold the investment. The most powerful element by far is N, the number of years because N is the exponential factor. Warren Buffett is a great example of this. He is the best investor the world has ever seen and he has made all his money off of N, finding good companies and just holding them for a long period of time. What’s really magical about this equation is it doesn’t just talk about how you compound money it is also the formula for compounding your own skills in your life and your career. Y is where you’re going to ultimately end up in terms of how good you’re going to be at what you do X is where you start, R is the rate of improvement and N is the number of years you’re going to stick with that career. Just like N is the most powerful part of this equation for compounding your money, N is also the most powerful part for your life and your career. You want N to be as high as possible, which is why it is so important for you to find something that you enjoy because that’s the thing that you’re going to stick with for a long period of time.