8 | Confusing Compounding

Compounding is tricky.

It seems like some folks intuitively understand how compounding works and others learn once it is too late to matter.

Because the near side of the curve is so flat, it’s hard to have the patience to get to the far side. It seems like it’s always out of reach.

Because the far side of the curve is so steep, it’s hard to get oriented if you happen to make it there. It seems like the goalposts keep moving because the next “score” is so financially valuable.

To further complicate our relationship with compound interest, we get quotes like, “The first rule of compounding: Never interrupt it unnecessarily.”

Very useful if your goal is to make as much money as possible.

Somewhat less useful if your goal is to use money to fill a life as full as possible.

Not useful if life happens and you are forced to “interrupt” compounding at a less than ideal time.

I can’t argue with the power of compounding and the importance of letting it happen over time. The results on a spreadsheet or account statement are profound.

The tricky part is the squishiness of a word like “unnecessarily”. At some point, you’re going to have to “interrupt” compounding if you plan on using money to live your life instead of living your life to make money.

Once you understand how compounding works, I think the biggest growth opportunity is to get clear on what it means to “necessarily interrupt it”.