How to Harness the Power of Compounding: The Snowball Effect
Wisdom
One piece of wisdom that motivates, encourages and empowers you to grow.
“Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” -Albert Einstein
Insight
One insight that helps you deeply understand a situation, idea, or concept.
What is The Snowball Effect?
Think of the "Snowball Effect" as a visual mental model that explains itself just by its name. Picture a small snowball rolling down a mountain.
Initially, nobody really notices it. But as it rolls, it picks up more and more snow, growing in size. The key is that it keeps getting bigger and stronger over time, becoming unstoppable.
To make the most of this concept in your life, remember two simple rules:
Don't disrupt the snowball while it's rolling.
Be patient and watch as the snowball gains momentum.
Let's delve into what these rules mean by exploring three examples of the snowball effect: money, knowledge, and effort. Starting with money...
Money Compounds
Money multiplies over time.
Imagine you have $10,000 in savings. If you invest it and it grows by 12% every year, that's a good return which you can achieve with investments like index funds, especially if you leave it untouched for a long time.
Now, let's see what happens after 10 years, 30 years, and 50 years.
After 10 years:
You've put in a total of $70,000.
The value of your investment is $136,350.
You've gained a return of 94.7%.
After a decade, your investment has done well, even if there were some financial ups and downs.
After 30 years:
You've saved a total of $190,000.
The value of your investment is a whopping $1,747,595.
You've gained an incredible 819% return.
You are a millionaire as you’ve consistently put in $6,000 every year.
After 50 years:
You've contributed $310,000 in total.
The value of your investment has skyrocketed to $17,290,131.
That's an incredible 5477% return, making you a multi-millionaire.
It's amazing how your money has grown just by letting it grow over a long period.
Imagine if you added even more money each year — your earnings would be even more.
Knowledge Compounds
Understanding this concept is a bit nuanced.
Think of knowledge as a smart investment. Every piece of knowledge you gain is like adding money to a savings account that earns interest.
For example, if you learn math well, you can use it for coding, managing finances, or business tasks. Knowing history can help you see patterns in the world today.
But here's the real magic: if you understand both math and history, your brain gets even smarter. It's like having more puzzle pieces to connect, making it easier to learn new things.
This continuous growth of knowledge is what we mean by knowledge compounds. It builds up over time, helping you understand and learn more efficiently.
However, be careful not to confuse real knowledge with the often useless information you might encounter on social media or the news. That kind of information doesn't contribute positively to your understanding or growth.
Effort Compounds
Imagine you've just started sharing things on a social media account. At first, it feels like you're talking to an empty room—no followers, no likes. Doubts creep in, and quitting seems tempting.
Then, a person starts following you. The next day, another one joins. Slowly, you start gaining 1 or 2 followers every day. It's tough initially, but you're picking up speed.
You keep creating content and engaging with others. Over time, those 1 or 2 daily followers grow to 9 or 10, then 20 or 30. See the pattern here? It's like a snowball gathering momentum as it rolls.
The crucial thing is, if you stop too soon, the snowball loses its power. Persistence is the key. Keep at it.
Every effort you make from the very beginning adds weight to the snowball, making it bigger and faster.
Think long-term. Some people look for shortcuts to success, like a quick path to money. But the most reliable way is gradual progress over time, like how a snowball grows and gains speed.
Once that momentum builds, nothing can stop it.
Living Legend
One inspiring story of a famous person still living for doing something exceptionally well.
Darren Hardy
Darren Hardy, a renowned author, speaker, and entrepreneur, is a living legend in the realm of personal development and success. He was the publisher of SUCCESS magazine and is best known for his impactful work on the "Compound Effect," a principle that has significantly influenced his life and career.
Throughout his career, Darren has experienced firsthand how small, consistent actions compounded over time can lead to monumental success. He has tirelessly emphasized the power of daily choices and their cumulative impact, much like the magic penny story.
Darren's fascination with compounding started early in his career, where he saw the transformational effects of consistent effort and learning. Over time, he realized that success isn't an overnight phenomenon but a result of steady, persistent actions and decisions.
The magic penny story, one of his notable illustrations of the "Snowball Effect," highlights the importance of making choices that might seem small at the moment but lead to extraordinary outcomes when compounded over time. It's a principle he has not only preached but also applied in his own life to achieve remarkable success in various endeavours.
Darren Hardy's life story and teachings serve as a compelling testament to the potential of compounding—inspiring countless individuals to embrace consistent, intentional actions that, over time, yield substantial achievements and lasting success.
Final Thoughts
Questions for you to ponder and think carefully about.
Do you have any long-term investments that grow over time, like a savings account that earns interest?
Do you continuously learn and gain more knowledge, building on what you already know?
Do you consistently work towards a goal, gradually increasing your efforts and achieving more over time?
Cheers,
Ben Mumme
Founder and CEO of Living Your Greatness
P.S. I really enjoyed this conversation with Dr. Benjamin Hardy called “Personality Isn't Permanent”. I’m confident you will too!
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