Monday, January 22, 2018

IN 2018 LET US ADOPT THE RELIGION OF COMPOUNDING

It’s that time of the year either by discipline or to keep up with the Jones, we need to make some resolutions.

Despite popular opinion a person who makes a resolution in January and gives up on it in February is better off than a person who doesn’t make a resolution at all.

One reason people give up on their resolutions is because the completion is supposed to happen at some distant date – 31st December.  How about we change that?

Never trust the silver bullet, the one that will solve all your problems. However there is one that might do a world of good if we slotted it in the chamber.

"Albert Einstein called it the eighth wonder of the world. It is what prompted Bill Gates to pronounce that we overestimate what we can achieve in a year and underestimate what we can do in ten years. And it is the realisation that it is not will power that will help you achieve future goals but habit...

Yes, will power is required to get started but once you establish a routine habit takes over and you often surprise yourself when you achieve or even surpass your initial goals.

Improvements in our lives assume that growth has happened. For growth to happen there has to be input. Input of time. Input of knowledge. Input of effort. Input of money. Take your pick.


VF = VI[1-R]T

That is the formula for compounding.

But for the layman the rule of 72 will suffice to illustrate the power of compounding.

The rule of 72 says if you have a rate of increase say 10 percent, divide 72 by the number, the answer will be how long it takes to double what the rate of increase is being applied to.

So for instance Uganda’s population is growing at about three percent annually. When you divide 72 by three you get 24 years, the time it will take for us to go from the current 40 to 80 million citizens. 

Or the economy of Uganda is growing by about six percent a year over the last three decades, divide 72 by that figure and it shows the economy will double in the next 12 years assuming we continue growing at the same rate. 

If NSSF continues paying double digit interest on your savings – say 10 percent a year, it will take just about seven years for your savings to double, assuming you never added any more savings during the period.

So assuming we need our business to double revenues by December 31st all we would need to do is divide 72 by 12 ( six percent) to determine what rate our revenues need to grow a month or divide by 52 (1.4 percent) to  determine the weekly increase or even 365 to determine the daily increase (0.2 percent).

Here are a few things we can compound in the New Year.

1.       Reading

Imagine if we commit to waking up 30 minutes earlier than we have and read for thirty minutes a day. That would mean 3.5 hours of reading a week, 14 hours a month and 168 hours a year.
But that is all linear progression.
To benefit from the compounding choose a subject – geography, investing, anatomy, any subject you want to understand and the benefits begin to compound. With every new reading you will be building on prior knowledge, this will deepen your expertise in the subject. This important because eth experts get paid better.

2.       Saving

Let’s commit to saving dollar a day. At the current exchange rate that would be sh3680. At the end of a week you will have sh25,760, a month sh103,040 and at the end of the year sh1,236,480.
To let compounding come into play, if you put your money in a savings account at say three percent a year you could double this money in 12 years. But if you keep with the formula maybe even increase to saving two dollars a day in 12 years there will be a lot more money than we are talking about now.

3.       Investing

I read an interesting article a few weeks ago in our Harvest Money pull-out about a man who had grown his chicken population to hundreds from an initial group of under 10 birds. The science of breeding not withstanding this compounding.

Or imagine you plant a tree a day for a year you will just about cover an acre of land using a 3 by 3 metre spacing. At sh2000 a seedling with an expectation of getting sh20,000 a tree in 10 - 15 years, you could cash out sh9m or a compound of 25 percent annually. It could be better or worse.


The point is let us break up our goals in to bite size portions that we can start executing, create the habit and voila!

Monday, January 15, 2018

IT’S GRADUATION SEASON

Thousands of young men and women have been and will be, over the next few weeks, graduating from one or the other university in the land.

Graduation is the culmination of years of sacrifice (often times we would rather have been playing), pain (corporal punishment is still alive and real) and tears (invoked by the first two but also by exam failure, puppy love gone sour and everything in between).

It is also the time when, whether all that hard work was worth it.

Not to rain on any ones parade here are some hard truths about the real world our graduates will find themselves flung out of the gates of university on to.

1.       Your degree means nothing

I lie. But hear me out.

Our current education system is a carryover from industrial age Europe and is designed to churn out automatons to work in factories. Seeing as we are not yet an industrial nation there is a place for the education you have amassed. However the suggestion is that we may leap frog this industrialisation thing altogether, which would be a worry for the tens of thousands filing out of campus this month.
With technological advances we do not need all that labour, to put a bolt on a screw all day long for instance.

What this means is that school is not yet out. The biggest lesson from all those years in school is that you now know how to learn. To be a winner in a world of fast change, you have to able to learn faster and faster, discard old perspectives and even dare to reinvent oneself entirely – scientist becoming writers and artists becoming accountants.

2.       Hunger, load shedding and the midnight cold will not kill you

It was a blast while it lasted. In the real world you can’t party till the morning and appear blurry eyed for an eight o’clock. You can’t just reach into the fridge and pull out a soda unless you put it there yourself. And if it rains turning over in your bed to catch a few more winks is not an option.

In short you have to grow up. And grow up fast.

Going without a meal because your salary can’t take you through the month will not kill you. Load shedding – or running out of yaka, is not the end of the world. And enduring the biting cold of a night shift does not make you a lesser man.

In fact the sooner you experience all this the better for you. There is nothing as pathetic as learning these lessons in your middle age.

3.       Humility will be your best ally

You might have been the big man on campus, the guild president or the sports captain. Leave all that at the gate. Humility will be your biggest ally in manoeuvring through life from here on. You might know more than the boss, speak better English than the traffic policeman or even smell better than the taxi tout but it will serve little good to point it out. There are some battles you will do well to pass on.

Humility will help in keeping your eye on the long term and not get distracted by the rabbits on the path of life.

4.       The consequences of your actions will live with you forever

Your transgressions can no longer be overcome with a teary outburst and feigned apology. Your actions have real consequences that will live with you for a life time. Staying on the straight and narrow is the best percentage play. Aim for sustainability over the one off pleasurable experience; accumulate experience rather than seek the elusive deal of a life time; treasure the quality rather than hanker after quantity in your relationships. And have a higher calling than just your egotistical desires to steer you on.

5.       Amidst all this you must keep hope alive

Many times, hopefully only sometimes, life is going to come at you from all angles, throwing you challenge after challenge and it would really be bad form, not to mention bad manners, to go wailing to your mummy every time this happens.

You are young and alive. Going on probability you are going to live a long life – well at least until you are 59 (the national life expectancy), it is not the time to give up.

Through it all keep hope alive. Hang on to it like your life depends on it, because it does.


Otherwise congratulations to you all and may you come out the other side with a smile on your face and a spring in your step!