The Power of Compounding and Rule of 72: Understanding Exponential Growth in Personal Finance
"Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it." - Albert Einstein "The power of compounding is the most powerful force in the universe." - Albert Einstein "The greatest shortcoming of the human race is our inability to understand the exponential function." - Al Bartlett The power of compounding is the ability of an investment or savings to grow exponentially over time, as the returns generated by the investment are reinvested to generate further returns. In other words, compounding allows you to earn interest on both the principal amount and the accumulated interest. Here's a simple example to illustrate the power of compounding: Suppose you invest Rs.1,000 in a savings account that pays 5% interest per year, compounded annually. After one year, your investment would have grown to Rs. 1,050 (Rs. 1,000 x 1.05). If you leave your investment untouched for another year, it would gr...