The Mythical Money Magnet: Compounding.
Arbutus Compoundis: the tree that grows money.
This is what we’ve all been told money doesn’t do, but wish it would do: grow on trees. We’d all love a tree that grows money. But we’re told they don’t exist, so we dream instead of second best: winning the lottery. (The odds are better, we think – at least there are odds; and with a big enough windfall of money, we wouldn’t need a tree to grow, find, or earn, any more anyway.)
But in fact money trees, trees that grow money, do exist – they’re called Arbutus Compoundis. (By no one of course but myself.) They are trees that are watered, fed, and grow, on compound interest.
Here’s how it works: plant that short stack on the left (below) in some interest bearing account that continues to add the interest you earn to the principle you put in, and your money will generate money. It will grow in your absence. If you wait long enough, refrain from peeking, fixing, fiddling and generally messing with it at all – you come back to the nice increased stack on the right:
The ‘money magnet’ we thought was a new-age fantasy turns out to be – our money. And it’s magnetism is called compounding interest. In case you aren’t yet sure: it’s not boring, it’s super-sexy. Even Einstein batted a few eyelashes at it: “Compounding is mankind’s greatest invention because it allows for the reliable, systematic accumulation of wealth.”
Want to have money that grows on trees? Here are the principles to remember as you plant your own Arbutus Compoundis:
1. Plant your money in an appropriate account = any interest bearing account where you can and do choose to keep adding the interest you accrue to the principal amount.
2. Leave it alone. Like a terrarrium, consider it a fully functioning self-contained ecosystem: setting it up right means setting it up to leave it alone. Precisely the magic of the thing is that, once set up, it does not need your help to grow and thrive. The fragility of the thing is that touching and tweaking, grooming and generally disturbing the brilliance of the system itself – is just interference. You’re not helping.
3. Don’t forget to leave it alone. Let your money hang out in its biodome. The longer you let it hang out, the bigger it will be the next time you turn around. The bigger it grows, the greater its magnetism – i.e. the more money it calls unto itself, by itself, at a steadily increasing rate.
4. Finally, leave it alone. Because in order for your tree to really bear the fruit that it can, you don’t harvest until it is ripe (e.g. retirement accounts like 401(k)s and IRAs). This is why you should plant an orchard: ensuring different trees will be ready for harvesting at different times, whenever you might be in need.
Learn to make your money work for you, teach it to grow on its own. – Where ‘teach’ means as little as procuring its little biodome or terrarium (the account, you can get one for free); planting the seed of your principle in there; and adding ‘compound interest please!’ to the ecosphere; and then, trusting it to do its thing. Its growing-on-its-own thing. Its using-the-resources-already-contained-within-the-system-to-sprout-more-and-more-money-leaves thing.
Start small if you have to, but start compounding. Time is the yeast in this recipe, not the principal amount you put in. Small stack leads to bigger stack; and yes, bigger stack leads to even bigger stack; but waiting for a big stack to start with leads to no growing stack at all.
Plant some trees that grow money – they do exist. Plant one today. If you need help planting your orchard, I can recommend the following as wonderful resources on how to start:
I Will Teach You To Be Rich by Ramit Sethi
Transforming Your Relationship With Money by Joe Dominguez