Albert Einstein called the power of compounding a miracle.

To be more exact, he said:

“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

The power of compounding is an expression for the effect when the money that you have already earned using your money, also starts making money.

What is compound interest and how can you achieve it?

In this blog post, I’ll give you five examples of it. The first is the most obvious one: your savings account.

1. Compounding With Interest

Let’s imagine you have a savings account with interest on it (as in the old days). Let’s say that the interest rate is 10% (this was actually possible when I was a child).

You deposit 1,000 USD… and then you do nothing more.

Next year you have 1,000 USD plus 10%, and that will amount to 1100 USD.

The year after that you’ll receive more than 100 USD, because the first 100 USD you earned on interest will also earn you money. Now you get 10 % of 1,100 USD.

So the interest earned on year two is 110 USD.

The extra 10 USD came from the power of compounding.

2. Compounding on Stocks

Of course, the same thing happens with your stocks.

But when it comes to shares, you may need to do something active to take advantage of it.

The money you have already earned must be reinvested in order for you to take advantage of the compounding effect.

For example, if you get paid dividends or have sold shares with a gain, you have to reinvest the return so that it’ll still make money for you. If you buy shoes with the money, you’re ruining the power of compounding.

3. Knowledge and Experience

Warren Buffett says there is power of compounding when you gain knowledge. It’s important to keep learning and reading about companies you want to invest in.

The knowledge you build makes it easier to absorb additional knowledge.

We continue building on what we have already invested in our brain.

This obviously is true for all kinds of experience and knowledge – not just investing.

4. Friendship and Goodwill

Whatever you send out, you get back manifold.

The famous value investor Guy Spier believes that one of the things contributing to his success is a habit of sending three physical thank-you letters by mail every day.

He says the little things in life can have a big effect over time. However, it can take up to five years before the effect shows up – and most people have already given up long before that.

“I now understand, this habit of writing letters is an incredibly effective way of compounding goodwill and relationships instead of merely compounding money,” he wrote in chapter five of his book The Education of a Value Investor.

“The narrowly financial application of compounding may be the least valuable and least interesting aspect of this phenomenon.”

This way of thinking is very inspiring and can really make you aware of what you are setting in motion.

One unkind word can turn into a crisis. A little well-meaning praise can be the beginning of a budding new friendship.

But it’s important not to expect an immediate and quick return on your effort.

Just give and let go. Everything comes back to you amplified – but from unexpected sources.

5. Health and Strength

The power of compounding is inherent in everything.

Of course, it also applies to your health.

If you aim to become a little healthier every day, exercise a little more every day, you can get in very good shape in a very short time.

Think about it.

If you just get one percent stronger every day, you’ll be a lot stronger after a year.

Or let’s take running as an example.

According to a very common rule of thumb, you can only add 10% to your weekly mileage (in order to avoid running injuries).

Let’s say you’re beginning a new running practice, and you’re not supposed to run more than 10 miles (accumulated).

In week two you can run 11 miles – which is really NO difference in your daily running schedule. This stuff can drive you nuts with impatience if you want to train for a marathon.

But wait, it gets so much better as the power of compounding sets in.

10 weeks later you’ll already be able to run 26 miles, and after 15 weeks you can run 42 miles. After a while, you can add 15 miles a week to your weekly total.

Obviously, there is a natural limit – you can’t become infinitely strong or run infinitely – but for a long time, you can reap the benefits of the power of compounding.

Also, there is a kind of mental compounding. When the ball gets rolling and you can feel how you’re getting healthier and stronger, you’ll feel like doing even more.

It is very motivating.

Where Do You Want to Apply this Power Today?

I could give you many more examples of the power of compounding. 

In fact, it’s in everything.

Even in this blog.

Let’s say you launch a blog, and in the first year, you have around 500 readers who are mainly your polite friends and family.

But if just 8 out of 100 recommend it to a new reader every month, the blog will grow organically to 1,200 in a year and to 46,000 readers in five years (oh, please take this as an invitation to invite others to read the blog or download the e-book).

I tend to think about this power and live by it in everything I do, whether it’s learning a new language, running, teaching my kids to read, or spreading kindness.

My question to you is:

In what area of your life do you want to activate the power of compounding today?

If you liked this post, remember to recommend both the blog and the e-book Free Yourself, which you can find here.

Bob Proctor taught many people how to live their lives to the fullest, to be more and to earn more than they ever dreamed of being and earning before they met him.

Bob, who was 88, was in the middle of a lot of projects when he died (it’s said he died peacefully in his sleep), and for many of us it feels like a long conversation interrupted too soon.

I was in the middle of getting a certificate as a Proctor-Gallagher consultant, and I was doing a mastermind group with him every week where he gave lectures and answered questions.

I learned a lot from him, and I hope I got it all. I wish I had asked him more questions. I felt like I was holding myself back and waiting for the right time to ask my questions… and now it’s too late. I have to work with the material that he left behind.

Bob tends to say that you haven’t learned it until you can explain it.

That’s why I will use this blog post to honor his memory by looking through my notes from his mastermind teaching, selecting the ten most important principles… and explaining them.

Maybe they can be useful for you, too.

In any case, here they come:

1. Always Work From Your Goal

A lot of people get lost on the trail because they don’t know where they want to go.

People doubt themselves and look for guidance outside of themselves. They ask other people all kinds of questions.

Should I quit my job first or wait?

Should I set the price at this or that?

Should I buy a house or rent one?

“I do not know. What is your goal?” Bob would reply.

Bob says you should always work with your goal as your point of gravity.

This means that you need to be fully aware of what you really want to achieve.

What does it look like in detail? Describe it. Write it down.

This applies to all areas.

Let’s go through some examples:

If you want a new house, describe that house in detail. The view, the different rooms, the atmosphere, the sounds, the smells. Forget about practical things like the physical location, the exact price, or the mortgage.

If you want to build your business, you need to be fully aware of what you want to make, who you want to serve, how much you want to earn and how much time you want to put into it before making any business decisions. Describe your business and your life.

If you are single and want a partner, do the same. Describe the person you want to attract. Also, write down who you want to be in the relationship. Many people make the mistake of throwing themselves into a relationship with someone who isn’t a match at all because they haven’t really decided what they want to attract – they pick something random that life throws at them.

2. Set Big, Dizzying Goals

Bob talks about A, B and C-type goals.

An A-type goal is something that you know you can achieve because you’ve done it before.

A B-type goal is something that you think you can achieve because you have the skills to do it and maybe you did something similar before.

A C-type goal is when you haven’t got the slightest idea how you’ll achieve it.

To give you an example, it was a C-type goal when JFK decided to have the US astronauts land on the moon within a decade. No one had done it before.

The purpose of a goal is to make us grow as human beings. We don’t grow if we set small goals.

That’s why you must set big, juicy, and impossible goals.

3. Be the Person You Want to Become

You need to assume that your goal has already been achieved.

You have to say, “I’m so happy and thankful now that I run a company with a million-dollar profit,” or “I’m so happy and grateful now that I run a billion-dollar fund” – even if you don’t have a company or run a fund at all.

You should feel the joy of having achieved your goal right now.

Never say you want to achieve anything. Say you ARE it.

For example, “I’m a successful businesswoman.”

Achieving a goal is about growing and changing, so the trick is to grow and change into that person who has already achieved the goal even before it has actually happened.

Think about who that person is and how they behave. Start living from that perspective.

How does your goal person make decisions? What kind of decisions do they make? Make that kind of decision in the same way.

What kind of discipline does such a person have? You must have the same discipline.

What kind of attitude does such a person have? You must have the same attitude.

You’ve got to see yourself being the person you want to become. Because ultimately, it’s all about who we become.

4. Get Into Your New Habitat

You have to start living the life of the person you want to become, and that means submerging yourself in that person’s habitat.

If your goal is to move to a certain type of house, go to that area every day. Hang out near those kinds of houses.

If it’s a certain lifestyle, start living that lifestyle right now to the best of your abilities.

Maybe you can’t afford to sleep in the first-class hotel yet. Then just go there for a coffee. Feel the atmosphere.

If your goal is to attract love, start being love. Give yourself flowers. Give love to others.

See yourself living the life that your goal person does.

Visualize it. Live it already. Feel it. Be it.

5. Sacrifice Something

Something has to go to make room for the new.

What are you willing to let go of?

Maybe it’s an old story about how the world works (e.g., “capitalists destroy our world”).

Or it could be a story about yourself (“I’m not good at money”).

It could be a habit like watching Netflix every evening or postponing doing the work.

Maybe it’s sleeping late in the morning so you can get up and write for your book project starting at 4 a.m.

What are you willing to sacrifice to reach your goal?

6. Wanting More Money is Good

“How much money are you comfortable saying you will earn?” Bob asked.

There is something unnerving about that question.

Because isn’t it true that a lot of people are uncomfortable with money?

Many people are ashamed of wanting to have more money, and that is completely wrong, Bob says.

What makes you strive for more money is the same thing that makes you grow as a person.

It’s the same force of nature that makes a plant grow.

From this follows that it’s good to set big money goals.

Money is just a kind of energy.

“Money is an accurate measure of how you are progressing towards your goal,” Bob said.

Are you comfortable making more money than your dad did? Than your whole family combined? Are you ready to earn more than your previous employer?

Where is your limit? Try to push it.

7. Stay Focused and Take Action Every Day

Stop focusing on what is missing and start focusing on what you want and what actions you can take every day.

Let go of the past. It’s not there anymore. Do not let current circumstances limit you.

This week’s grades, or your current payroll or bank account statement is also a thing of the past.

These things are not who you are – they’re just small relics of your past story and your old paradigm.

Don’t ever focus on what you don’t want, because you’ll just get more of it.

Only focus on what you want.

Think ahead all the time and do what needs to be done.

Ask yourself every day:

“What is the best goal-achieving activity that I can do today to achieve my goal?”

And then do it.

8. It’s Simple

“Stop making it so complicated,” Bob said. “You just have to make a decision and get emotionally involved with it, and you will attract everything you need.”

The only prerequisite is wanting it.

He calls it the “power of assumption” and says it’s life’s greatest shortcut. Just assume that will happen.

“This-will-be is a great way to live,” he said.

By the way, saying that it’s simple is not the same as saying that it’s easy, because staying focused on the goal (and cutting out distractions) requires will and discipline.

9. Take Massive Actions

Don’t be afraid of actions.

A lot of people get paralyzed, because they are afraid of doing something wrong and making a mistake.

That’s just resistance, and the best cure for resistance is action. Whenever you feel resistance, think of an action you can take, and take it.

There is no reason to fear failure, because so-called failure is just “unfinished business,” Bob explained.

He said it’s nothing to get hung up about.

“Every action you take is going to show you where to go next. Just keep taking action. You can’t take enough action when you have a big goal,” Bob said.

10. “And This Is Good.”

Bob sometimes told us the story of how he lost his only manuscript for his book You Were Born Rich in a taxi.

He didn’t have the license plate number. He didn’t even remember the taxi company, the color of the car, or the face of the driver.

“And this is good,” he said when he realized that the book he had worked so hard on writing was gone forever.

Then he began to look for reasons why it was good.

He ended up rewriting the whole book, and he was convinced that it became much better because of the rewrite.

Bob is gone now. The conversation with him is over.

I know exactly what Bob would say. He would say:

 “…and that is good.”

I’m not sure how it’s good that he is gone, but I’m grateful that he was here for 88 years and taught us the Law of Attraction for 65 years of his life.

I wish he could have turned more than a 100 so I had 12 more years to learn from him.

But that’s not how it turned out, and somehow it’s good.

 I don’t know yet why that is good, but I will keep looking for the reason.

To learn about building wealth through stock market investing, read my e-book Free Yourself here.