IN 2018 LET US ADOPT THE RELIGION OF COMPOUNDING

It’s that time of the year either by discipline or to keep up with the Jones, we need to make some resolutions.

Despite popular opinion a person who makes a resolution in January and gives up on it in February is better off than a person who doesn’t make a resolution at all.

One reason people give up on their resolutions is because the completion is supposed to happen at some distant date – 31^st December.  How about we change that?

Never trust the silver bullet, the one that will solve all your problems. However there is one that might do a world of good if we slotted it in the chamber.

"Albert Einstein called it the eighth wonder of the world. It is what prompted Bill Gates to pronounce that we overestimate what we can achieve in a year and underestimate what we can do in ten years. And it is the realisation that it is not will power that will help you achieve future goals but habit...

Yes, will power is required to get started but once you establish a routine habit takes over and you often surprise yourself when you achieve or even surpass your initial goals.

Improvements in our lives assume that growth has happened. For growth to happen there has to be input. Input of time. Input of knowledge. Input of effort. Input of money. Take your pick.

V_F = V_I[1-R]^T

That is the formula for compounding.

But for the layman the rule of 72 will suffice to illustrate the power of compounding.

The rule of 72 says if you have a rate of increase say 10 percent, divide 72 by the number, the answer will be how long it takes to double what the rate of increase is being applied to.

So for instance Uganda’s population is growing at about three percent annually. When you divide 72 by three you get 24 years, the time it will take for us to go from the current 40 to 80 million citizens. 

Or the economy of Uganda is growing by about six percent a year over the last three decades, divide 72 by that figure and it shows the economy will double in the next 12 years assuming we continue growing at the same rate. 

If NSSF continues paying double digit interest on your savings – say 10 percent a year, it will take just about seven years for your savings to double, assuming you never added any more savings during the period.

So assuming we need our business to double revenues by December 31^st all we would need to do is divide 72 by 12 ( six percent) to determine what rate our revenues need to grow a month or divide by 52 (1.4 percent) to  determine the weekly increase or even 365 to determine the daily increase (0.2 percent).

Here are a few things we can compound in the New Year.

1.       Reading

Imagine if we commit to waking up 30 minutes earlier than we have and read for thirty minutes a day. That would mean 3.5 hours of reading a week, 14 hours a month and 168 hours a year.

But that is all linear progression.

To benefit from the compounding choose a subject – geography, investing, anatomy, any subject you want to understand and the benefits begin to compound. With every new reading you will be building on prior knowledge, this will deepen your expertise in the subject. This important because eth experts get paid better.

2.       Saving

Let’s commit to saving dollar a day. At the current exchange rate that would be sh3680. At the end of a week you will have sh25,760, a month sh103,040 and at the end of the year sh1,236,480.

To let compounding come into play, if you put your money in a savings account at say three percent a year you could double this money in 12 years. But if you keep with the formula maybe even increase to saving two dollars a day in 12 years there will be a lot more money than we are talking about now.

3.       Investing

I read an interesting article a few weeks ago in our Harvest Money pull-out about a man who had grown his chicken population to hundreds from an initial group of under 10 birds. The science of breeding not withstanding this compounding.

Or imagine you plant a tree a day for a year you will just about cover an acre of land using a 3 by 3 metre spacing. At sh2000 a seedling with an expectation of getting sh20,000 a tree in 10 - 15 years, you could cash out sh9m or a compound of 25 percent annually. It could be better or worse.

The point is let us break up our goals in to bite size portions that we can start executing, create the habit and voila!