Einstein allegedly called compound interest the eighth wonder of the world. Whether he said it or not, the math proves the point. Understanding compounding is the key to understanding how wealth actually accumulates.
Simple vs Compound Interest
Simple interest calculates only on your principal. If you deposit KES 100,000 at 10%, you earn KES 10,000 every year regardless. Compound interest calculates on your principal plus all previously earned interest. In year one you earn KES 10,000. In year two you earn 10% on KES 110,000 — that is KES 11,000. The interest grows on itself.
The Power of Time
A KES 100,000 investment at 12% annual return becomes KES 310,585 after 10 years, KES 964,629 after 20 years, and KES 2,995,992 after 30 years. Same investment. Same return. Only time differs. This is why starting early is more powerful than investing large amounts later.
The Rule of 72
Divide 72 by your annual interest rate to find how long it takes your money to double. At 12%, your money doubles every 6 years. At 8%, every 9 years.
Your Action Step
Use our Compound Interest Calculator at wealthinsights.co.ke/tools/compound-interest. Enter what you can invest today and see what it becomes in 10, 20, and 30 years. Then start.
