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The fantasy that is money doubling versus the magic of compounding interest

A couple of months back, I was sat on a bed with my friends ‘Nasa and Lols, huddled together, heads bent and deep in thought. Lols had asked a question so profound that it required deep thinking. She asked and I quote “what investment can we pool our money together for, that we can contribute to religiously and that would help us create sustainable wealth over the next two decades”? There we were, a Management consultant, a Lawyer turned Baker, and a Finance professional, uniquely different women yet driven by one common goal; the goal of securing our financial future. This should be top of mind for every young professional around here, more so now that our net worth is confronted with the not-so-pleasant realities of rising inflation and cyclical currency devaluation. Hers was a question so easy, yet so life changing.

 

As the financial expert of the group, I was heartened to realise that my friends have internalised the notion that sustainable wealth hardly happens overnight. It takes patience, discipline and nurturing to build wealth that multiplies and becomes transferable. To digress a bit, this got me wondering; why then does our society seem to celebrate the ideologies of instant wealth and get-rich-quick schemes? And at the risk of generalising; why does the average social-media youth want to blow overnight? This is a breakdown in our value system that we must collectively acknowledge and fix.

 

Back to the ladies, we committed to putting aside some money at fixed intervals, to pick optimal asset classes and to allow time to do its magic. This plan would involve putting our money to work with the mind to one day receive a steady stream of return to pocket. We resolved to allow the law of compounding interest to take its course.

 

What then is this law of compounding interest you may ask and how does it help us achieve our goal? Like the wise man Arkad stated in the scribblings that culminated in the book “The Richest Man in Babylon” by George S. Clason; to become wealthy, what you save must earn and that interest earned is a child that should produce more children (not verbatim). It means that when you earn return on your investment, it is advisable to reinvest that interest with your principal for the next cycle so that your interest earns interest, and thus the cycle continues. This is the optimal attitude to saving and investing on the journey to financial freedom.

 

What then is the role of “money doublers”? Is money doubling really a fantasy? Maybe not! The stock market is a very interesting one that rewards good decisions and patience. Your money can grow multiple times if you get the timing right. There are also non-traditional investment opportunities that pay very interesting return; project finance, consumer lending, private equity etc., for which as a private investor, you must do your due diligence and get expert advisory. There are many investment opportunities you can consider – just make sure you have reasonable risk/reward expectations and seek expert opinion. In my view, overnight money is the exception and investing with the intent of money doubling will only expose you to the risk of Ponzi schemes and investment scams.

 

Finally, your personal finance journey does not need to be a lonely one; get friends like mine who understand how important it is to plan for your financial future. You need them in your corner as we all seek to navigate this gift that is life.

 

Temitope (Temi) Obasanya

Temi is a Chartered Financial Analyst and Personal Finance Expert with over 11 years’ work experience spanning regional markets across sub-Saharan Africa. Her passion for positive social impact and sustainable wealth solutions has seen her deliver financial literacy coaching to individuals and small businesses, helping them make better financial decisions.

Email: topebusari@gmail.com
LinkedIn: https://www.linkedin.com/in/temitope-busari-cfa/

 

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