• Divide and Rule: Make Compound Interest Work For You

    by Alexander Becker on October 08, 2006 | Link

    Create abundance by dividing what you have into separate, distinguishable parts and set goals for each one of them.

    Use this technique with money and you will quickly learn what abundance is all about. From whatever you have take one half and another half and another one, this alone creates discrete amounts that start to gain in value simply because of the fact that they are addressable as specific entities. One pile is one pile, no matter how big it is, divide this one pile into ten piles, you have ten, albeit smaller piles, that start a life of their own.

    Subdivide even the smallest amounts of money -- or any other resource for that matter -- and take care of any one subdivision separately in order to let it grow and thrive undisturbed, thereby maximizing its performance.

    Separate equal resources into equal amounts. You may want to split into thirds or into any other ratio but I suspect equal parts are psychologically important, also, they make your results more comparable. Subdivide until you reach an atomic state where no further divisions are practically possible.

    Here is an example: Take a hundred dollars or whatever currency you use. Without further ado, save half of it and prepare to freely spend the rest. Now, $50 is still a lot of money, especially in terms of further splits. How about taking another part of it and add it to the savings pile? Save an additional $25. (In the beginning, you don't have to take half of it, save only $10 for example and proceed with halves later on.) If the remaining $25 still feel like too much to spend, go ahead and subdivide it even further and allocate another part of it to the savings pile.

    While the actual amount of money doesn't increase in this experiment, the mere act of thinking about allocations and working with this money raises awareness of the amounts you're dealing with and ultimately leads to more abundance through greater appreciation.

    It is important to make the divisions small enough in order to lower the threshold of maximizing them. A $1 stack is worth adding $0.05 to it, a $100 stack requires $5 to make the same relative increase.

    Divide and rule, divide et impera, is the recipe we're using to recursively break down any arbitrary amount into smaller sub-amounts, designating sub-goals and leveraging the higher impact of multiple goals to maximize each of the amounts as opposed to managing the whole amount with only one goal. The accumulated sub-amounts are recombined after a specific time, achieving greater returns than it would have been possible undivided.

    The foundation of this method of dividing and allocating resources is the theory of compound interest --

    Interest which is added to the original principal. New interest is then calculated, not only on the principal, but also on the interest that has been added. The more frequently interest is compounded, the faster the principal grows. Yearly compounded interest is considered the norm unless it is specified to be otherwise.

    The above outlined strategy is compound interest made work for you. You can even try and abstract this concept to resources other than money. Divide and rule any kind of goal and maximize your results and your feeling of abundance.

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