I'll Start When I Make More. Nobody Told Me What That Costs.

I was in my twenties the first time somebody explained compounding to me. I was making money and spending it, and it sounded like something for later, so I nodded and moved on. It took me years to understand what I'd been told, and by then the early years that could have been compounding were already gone.

Here's the plain version. Money invested in something real, a business or a piece of property, can earn. Then the earnings earn. Next year you're earning on what you put in plus what it already made, and the year after that on all of it again. For the first several years, almost nothing seems to happen. The numbers barely move. That's where a lot of people give up, because it looks like it isn't working. It's working. It's just slow at the start.

Now the part that never gets explained. Compounding does most of its work at the end. The earnings on the earnings only get big enough to matter in the last stretch, and you can't skip to the last stretch. The only way there is through the slow years. And the day you'll need the money doesn't move. Retirement, a kid's tuition, whatever the date is, it gets set by your life, not by when you start. So every year you wait doesn't come off the beginning, where nothing was happening anyway. It comes off the end, where the biggest years are. That's what waiting for the bigger paycheck actually costs. It doesn't cost you the small early years, it costs you the big late ones.

Two honest things go with that. It only works on something that keeps earning, and even then it doesn't run in a straight line. Some years go backward, sometimes for a while, and the payoff only shows up if the thing kept earning through the bad years. So what you put the money in matters, not just when. And it runs the other way too. A credit card balance you don't pay off is compounding against you, and that's usually the version people feel first.

My money was never sitting still in my twenties. It just wasn't compounding the way it could have, because too much of what it earned got spent, and those early years don't come back. I'm still in it now and still adding to it, and the point is simple. The earlier you start, the more time it has to work. If you haven't started, start. If you can add more, it might be smart to add it, because the sooner it's compounding, the more of the work time does for you, and the closer you can get to where you actually want to go.

And the real reason it took me so long wasn't the math. Nobody was in the room. There was no one to have the conversation with, and I wasn't going to have it with myself. That's a quiet way to lose money, with no decision ever getting made. On Friday, that's the letter. The biggest money decisions of your life, and why they so often get made alone.

Talk Friday.

— Mateo