In terms of finances, I wish I would have learned the lesson of compound interest when I was twenty-five years old. But, as with many things, it’s better to learn the lesson later than not at all.
Compound interest is when the interest earned on an investment is added back to the principal balance. This results in a larger balance, which then earns more interest. Here’s an example from Forbes Magazine:
“Let’s say you have $1,000 in a savings account that earns 5% in annual interest. In year one, you’d earn $50, giving you a new balance of $1,050. In year two, you would earn 5% on the larger balance of $1,050, which is $52.50—giving you a new balance of $1,102.50 at the end of year two.”
As the article goes on to point out, “The more frequently interest is compounded, the more rapidly your principal balance grows.”
Good leaders understand the power of compound interest when it comes to the vision of their organization. Instead of making a single, annual deposit at a company meeting or “vision night”, they use the power of regular investments to grow and deepen their vision. Often these are simple reminders that elevate simple tasks and activities into important vision components.
- “That’s why we do what we do.”
- “This is going to help us …”
- “Because of this, people are going to …”
- “Without this, we would …”
These reminders are the glue that holds the vision together. Without an awareness of how our activities contribute to the larger cause, we are prone to become short-sighted. We focus on the immediate instead of the future. People think more in terms of “me” than “we”.
Monthly deposits are better than one-time deposits. Weekly is even better than monthly, and daily is the best of all.
As a leader, look for every opportunity to use the power of compound interest.