OK, now if you are new to all this you must be wondering what the fuss really is? If you are not new to this, then the rational question to ask is, why have you not been using this, at least effectively enough? Let me take an example to explain the power of Compounding. Lets take the example of two people - Advaith and Pinky, who are a brother-sister pair. Advaith is 16 years old, while Pinky is 26. Both suddenly feel the adrenaline rush to save for the future after reading this blog and immediately start saving 1000 rupees every month into a Bank FD compounding annually at a rate of 9%. Now, both of them save 12,000 rupees yearly, but with one twist. Advaith saves for next 10 years, and then just stops investing all together. Where as, Pinky, diligent as most girls are, continues saving for next 34 years, till she reaches 60. In all of this, please note that neither withdraws any cash in-between and the interest earned is reinvested along with the Principal. Now lets see the power of Compounding: At the age of 60, Pinky will have 24,77,505/- and Advaith will have 36,37,600/- in their respective bank accounts. Surprised? Don't be, because the true gist of what I am trying to state here is the most important aspect of Compounding - Tenure or the number of years invested. As you can see in the above mentioned formula, the interest is raised to the power of n - the tenure. As tenure goes up, the Principal that is summed with the previous years Interest, increases exponentially. Hence, even when Advaith stopped after only a decade of investing, he is the rich man compared to Pinky, who has started a decade later and slogged her way through life!

Moral of the story, start saving NOW! I just cannot stress enough on the importance of starting early, as early as is possible. If as a trainee in some company at the age of 22, you start planning for your retirement, both your golden years as well as the age at which you gain financial independence will be a walk in the park. It is unfortunate that most people, due to lack of Knowledge or Will squander away this opportunity. As they say, saving is an attitude and so is spending it all away. That is the reason why you could have a millionaire bus driver and a bankrupt Bollywood hero, both co-existing in this society.

Well, I have dedicated one full blog post to Compound Interest in order to make you, my esteemed readers, understand the importance of this concept. My next post will be taking up a few more equations that will help you calculate for multiple scenarios and situations. There are plenty of online calculators out there to do the actual number crunching for you. All you need to understand is when to use which? So, thanks for taking the time to read my post friends. Adios, till the next blog comes up!