People listen to the word “Compound Interest” and their mind immediately goes to the share market. That is where they have heard it more often. But it is not a concept limited to stock market or Finance.
The Idea of Compound Interest
The interest you earned for your principle combines with your principle and earns you more interest in the next cycle. Then that increased interest accumulates to the existing principal and the 1st year’s principle. This goes on and on and on. As the years go by, not just your principle earns for you, but your interest also starts to earn for you. As time goes by the interest you earn would increase to a point where it exceeds the principal you invested in the initial year.
This is the amazing power of compound interest. But the fruits of this can only be reaped, only if invest a principal, allow it time to compound without interrupting it.
The power of Compound Interest comes from time more than from the principal or from the interest rate.
Quote
Knowledge and productivity are like compound interest. 1
How does it relate to knowledge work?
Our brain functions through Neurons. Neurons making connection is how we gather knowledge, learn new information and think. Our knowledge is essentially how well we can connect different ideas. Everything about knowledge work, from problem solving to creativity depends on these connections between these Neurons. Each information you add exponentially increases the chance it has to connect to all the information that you already have and also with any new information you add in the future.
So to summarise, the principle you invest is the knowledge you already have, and the interest is the connections made between those information, and the act of investing is gathering new information.
Why don’t many people experience this?
Many people don’t experience this and that is not because they can’t gather new information. Gathering new information is relatively easy. We are continuously gathering new information continuously in our day to day life, through various sources ranging from text books to youtube lectures, X, Instagram, movies, shows. Most of us would come across at least one new information that is worth remembering every couple of days.
The reason is that they don’t provide those information the necessary time it needs to compound.
“Humans tend to halve their memory of newly learned knowledge in a matter of days or weeks unless they consciously review the learned material.”2
We all do this, we come across something interesting, or useful, we think we remember, but we never make any effort to review them, never even think about until we come across an immediate use case for that information. At which point, we only have the meta-memory or the Feel knowledge and not the actual memory or the knowledge.
We are constantly flooding our brain with new information non stop, without giving it room to breath. We try to fill every second of silence with some form of stimulation or the other. Social Media and smart phones have made it very easy for us. We can’t spend time in our own heads (Related to Social Media & Boredom).