The Law of Compounding & How to Use it to Make Serious Profit


Money attracts Money.

It is said that like attracts like, and money is no different. Einstein called the law of compounding the 8th wonder of the world. He believed it was a law; a universal principle that can be observed, well, universally.

Imagine a little bet on a golf course: betting £1 per hole and doubling your bet on each hole seems like a fairly innocuous challenge. However that £1 bet compounded over each hole turns into £256 in 9 holes.

Quite a compounded effect isn’t it? Well that’s nothing. After hole 15 that amount has compounded to £16,384. Look at how much more money is being attracted now, in a shorter time, because of the compounded effect. Once you get to hole 18 the compounded total is £131,072.

Assets work the same way. Cash flow works the same way. Business and enterprise work the same way. Branding and reputation work the same way. Knowledge and education work the same way. And most importantly, hidden in the background pulling ALL these strings, time works the same way.

A water lily also obeys this rule, it seems. Each day it covers double the water surface it covered the day before. The first few days it covers very little that is visually or tangibly obvious. But after 30 days it has covered an entire pond, regardless of the size of the pond/lake.

This means that 29 days in it had only covered half the size of the pond/lake. It took 29/30ths of the time to get ‘halfway,’ and 1/30th of the time to get ‘all the way.’ It took 28/30ths to get ¼ of the way there, 27/30ths to get 1/8th of the way there, and so on. This is revelatory and can be leveraged to gain huge momentum, if understood, honoured and implemented.

The law of compounding states and dictates that the maximum benefit and momentum comes the longer you are in or doing it, rear loaded nearer or at the end.

In order to gain maximum Life Leverage of compounding, you need as long a time perspective as possible. People who think hour to hour, earn a wage and spend it. People who think day to day are employed operating functions imposed upon them by managers who can think week to week. Higher level managers may plan month to month, performing the yearly plan of the highest level managers.

The highest level managers are implementing a vision created 3 to 5 years into the future by the owners of enterprise. These enterprise owners are inspired by the visionaries who can think and see time in decades, and these visionaries are inspired by the sages who can see into next generations or lifetimes. The scale and reach of the vision is therefore directly related to the length of the time perspective.

“On May 25, 1961, President John F. Kennedy announced before a special joint session of Congress the dramatic and ambitious goal of sending an American safely to the Moon before the end of the decade.” On July 20 1969 at 20:18, Neil Armstrong and Buzz Aldrin made that 10-year vision a reality. They were the end result, but it was the vision of JFK and the patience and long time perspective that set the wheels in motion.

The Sistine Chapel took 4 years for Michelangelo to paint. It took, miniaturist Peter Riches 15 years to complete a Dolls house. The tiny 10-bed mansion, with its own servants’ quarters, a music room with grand piano, a hand-crafted games room with snooker table and a library with over 1,000 separately bound books, sold for £50,000. It is estimated that the great pyramid of Giza took two decades to build. It took 50 years to build the Palace of Versailles. They say it takes 20 years to build a reputation and 5 minutes to lose it.

So a long term time perspective, you could call this a long term view, is mandatory in Life Leverage and getting more done in less time.

If you have to work hard enough not to have to work hard, then for each unit of time you are in a niche or task or enterprise, the inverse relationship between time and money or results swings the other way. At the start you have to ‘work,’ the hardest for the lowest level, tangible result. It doesn’t seem ‘fair,’ but time isn’t ‘fair, and it is certainly not result-linear. At the ‘end,’ you work the least, the easiest for the highest level, compounded tangible results. And that doesn’t seem fair either.

The flighty, shiny penny, get-rich-unrealistically-quick mindset is susceptibility to believing the opposite of the law of compounding. It is the naïve belief that somehow somewhere you can have little to none of the front-loaded most-of-the-work-for-least-result and almost all the most-of-the-result-with-least-of-the-work, at the start.

  • They get attracted to something they think can shortcut the law of compounding, and before they’ve even given the roots a chance to hold down, they give up.
  • They give up and start again and give up and start again and give up and start again, and the only things that compound are pain, misery and low self worth. Then they they get upset, blaming and complaining when it all goes wrong.

This is not the Life Leverage philosophy. Ironically, the first thing they started and then stopped may have worked if they kept at it long enough, even if it wasn’t the best thing. Something done at an average level consistently will always beat something done very well for a short time and then given up on.

Depending on your source, here’s some interesting comments about shuttles:

  • The space shuttle uses half its fuel just to get off the ground
  • The space shuttle uses 96.2% of its fuel to get one foot into the air
  • The space shuttle uses nearly all its fuel in the few seconds immediately after launch

Whichever is statistically correct, you can see 80/20 principle and compounding in this. Around 80% of the fuel of a shuttle seems to be used and needed just to get the shuttle ‘off the ground,’ or to get it going, and the remaining around 20% is used for the entire rest of the voyage out of the atmosphere, into space, and all the way back again.

The cost of change

If more people knew about 80/20 and the law of compounding, they would think much more carefully about giving up or changing all the time. They would seriously weigh up continuing what they are doing slow-and-steady, against looking at the greener grass where it all looks faster, easier and better.

Most people, and especially those who don’t succeed, don’t give compounding a chance. Most people stop, give up and change course just before the time when compounding kicks in and starts to pay them back. You wouldn’t plant a seed, come back the next day and shout ‘where’s my frickin’ tree?’ Of course you know that in order to see the fruits, you’ve got to grow the roots. If you want to manifest the visible, you’ve got to master the invisible.

Imagine a constant heads-up display that you could see in your vision like you can get on cars as an optional extra and computer games. In these you can see ‘lives remaining or life force,’ ‘power,’ ‘weapon of choice,’ ‘strengths and weaknesses,’ ‘ammunition remaining,’ and so on. You have a constant visual measurement in real time of the consequences of your choices and actions. You can see if you are wasting ammo and energy.

Life doesn’t give you one of those, but imagine that it did.

Imagine that you had a visual feedback mechanism which showed a power bar or battery life gauge of your intangible, ethereal progress. Imagine that you could see the bar go up and down according to the future compounded results and consequences of your actions. Imagine the bar 4/5ths [80/20] full at the point where it looks like there are little physical results; you’d NEVER give up. You’d see the cost of change. 

The cost of change is the cost of resetting compounding to zero again. Imagine Tiger Woods giving up Golf at 18 years old because he hadn’t won a major yet. That would have reset 16 years of time invested, getting him more than 80% of the way towards multiple major wins and entry into Golf’s hall of fame.

Imagine Edison giving up his experiments for the light bulb on his 9000th or 9,998th attempt. And there must be so many stories of people who could have gone on to greatness but stopped just before they allowed compounding to start ‘reversing’ the most-of-the-work-for-least-result with the the most-of-the-result-with-least-of-the-work.

This works with money, time, energy, effort, trees and plants, workflow, exercises at the gym, your reputation and what you’re known for, debt; in fact it is hard to think about where the law of compounding doesn’t work, either in acceleration or reverse.

This is not saying you have to work really hard, that is not the Life Leverage way. This is saying the longer you’re in it the less hard you actually have to work for the compounded benefit. It took me around 4 years from starting a ‘real,’ business to become a personal net worth millionaire, minus all debt. I then made considerably more than a million personally in the next year; more money in less than ¼ of the time it took to make my first million.

And it was the ‘laziest,’ of all of the years up to that time, with the least amount of work for the maximum financial results at that time. And so it has continued to compound. I’ve been told from friends of mine who’ve made millions or billions, that this is normal and how it works.

It is the same with your brand & reputation, and what you’re known for.

When you start a business or enterprise, no one knows you and you and so know one knows that they can buy from you. You creep forward, one customer at a time, and don’t have the systems, staff or scale to grow fast. You are testing and you’re not yet your best so you’re going to be feeling your way in the dark.

You don’t know how to deal with what lies ahead because you’ve never been there, so you have to learn all the mistakes the hard way. You have to get all this out of the way before your first customer will refer you to someone else; just one person, and then it takes more time to build your referral network for the word to spread positively about what you do.

Again you could be almost 4/5ths of the way there and starting again resets it all to ZERO.

We live in a world of instant gratification. We see YouTube videos with 10million views and get seduced by what seems like overnight successes and celebrities, and pictures of before and after 6 packs and miracle cures all tempting our desire for shortcuts.

This is an unrealistic fantasy that tempts us because we don’t have a clear vision, and therefore get lured by distractions that look easy from the outside. The long term reality is poverty, lack of self worth and fulfilment, because each time you start again, having invested time into growing the roots but seeing no shoots, you have to go through the entire seeding, planting and fertilising process all over again.

The more this happens, the more you lose your confidence in your ability to create compounded success, and you look for further shortcuts to save you because you doubt your own ability. And so the cycle continues.

The deeper the roots, the higher the tree grows towards the sun, the wider and more radiant it’s leaves spread, and the more seeds it produces for future forests [generations].

Those ‘overnight successes’ invested time growing their roots to position themselves for maximum compounding and reach. Those 6 packs came from smart diet, the best exercises performed in perfect form and the best personal trainers to motivate, inspire and hold accountability.

You always hear people pointing out how the rich get richer and the poor get poorer?

Well this is generally the case as they are attracting more of what they already have; be that wealth and abundance or bills and a scarcity ‘there isn’t enough’ mentality. You won’t attract more wealth until you can learn to manage what you already have.

Compounding gives momentum, and works moving forwards or backwards. Ever growing percentages of money attract ever-increasing amounts of money. Ever growing debt attracts ever-increasing amounts of debt.

In fact, the rich have a problem with too much money: they can't reinvest it fast enough, because compounding is compounding on compounding, and because they reinvest it, more money comes in. Yes, the rich do get richer.

Let compounding work for you, don’t keep changing all the time and reverse as quickly as possible the front-loaded most-of-the-work-for-least-result at the start to most-of-the-result-with-least-of-the-work the longer you stay in.

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