There's a quiet force at work in the background of our financial lives. You cannot see it, you do not hear it, and unless someone has taught you how to track it, you might not even notice it.
But trust me, it’s there. Growing. Multiplying. Waiting. The Compound Effect. It is sold to us as the marvel of modern nance.
The eighth wonder of the world, one could argue, or wasn’t that the Maasai Mara, I hear you ask or for the truly patriotic, Kenyan’s unrivalled ability to overlap in traffic.
But what’s not in doubt is this: compound interest is magical—when it’s working for you. When it’s working against you? It’s straight-up satanic.
It all depends on which side of the transaction you’re standing on. So, let’s demystify the workings of compound interest. Because the more you understand it, the more likely you are to spot when it’s quietly working in your favour and just as importantly, when it’s not.
When I was younger (my daughter never lets me forget that those days are gone), I thought wealth was something people stumbled upon, a lucky break, a well-paying job, maybe inheritance, a political appointment, or getting signed by Arsenal (I did try this straight out of college.
It was tough—mainly because I did not realise Wenger didn’t accept unsolicited application letters). And for some, that’s exactly how it happens. But for the rest of us, who do not have access to those narrow and rare opportunities, there’s no need to despair.
Enter the compound effect. The magic is simple: whatever you put in (and yes, the numbers matter), if you stay patient and disciplined, that money starts working harder than you ever could. No sweat. No overtime. No endless phone calls.
Just quiet, compounding growth in the background. It’s why those who start early, even with modest amounts, tend to pull ahead.
It’s not just about how much you invest. It’s about how long you let it grow. Time is the real secret ingredient. And I have started to notice something about the people who always seem to have financial breathing room.
Their money? It’s usually doing laps for them. A quiet savings account. A few shares. A small plot of land (scratch that, Kenyans love a plot).
Nothing flashy, but intentional. Safe from the claws of greed and the constant need to impress or keep up with the Joneses. Don’t believe me? Check these numbers out, if you consistently invest Sh10,000 every month in a money market fund earning seven per cent per annum (compounded monthly), after 10 years you would have approximately Sh1.7 million.
And if you could be bothered to be patient, Sh3.1 million after 15 years or better still Sh5.2 million after 20 years. But then there’s the other side. The one no one posts about, though the CRB will happily remind you and then post about it.
It’s the credit card balance that never quite gets cleared. The fuliza that felt small, almost negligible at rst, especially after that irresistible “tuma fare basi” request, until you miss a month.
Over here, compound interest takes on a different shape. It doesn’t build wealth. It compounds struggle. Let me show you just how devastating this can be.
If you buy a phone worth Sh25,000 (you did send the fare and they came) on a credit card and only pay the one per cent minimum payment each month while the card charges 3.8 per cent monthly interest, you will end up paying Sh342,000 over 30 years.
Yes, that’s how long it would take to clear it. What about mortgages, if you buy a Sh10 million apartment and finance it over 20 years at an interest rate of 13 per cent per annum, your monthly repayment would be around Sh117,158. You will have paid a total of approximately Sh28.1 million.
I am not here to preach whether mortgages are good or not (I leave that to my friend Mbatha who understands a thing or two about finance), just showing the power of compounding.
Understand this, compound interest is not inherently good or bad. It just is. It grows what it is given. Give it investment, it grows value.
Give it debt, it multiplies burden. If you are lucky enough to have a little money left over each month, invest it, even modestly. Let time do what it does best. Because in this system, time is either building your wealth or quietly digging your financial grave.
The idea today is not to preach fear of debt, quite the opposite. Debt, on its own, is not the villain. When used with intention, it can be a powerful ally: a way to smooth cash flow, unlock opportunity and build momentum.
A credit card, when handled right, can help you manage your spending like a pro (my wife’s so good at it, she spots an unsanctioned golf game faster than the bank flags fraud).
An overdraft can steady your business while you wait for invoices to clear. Debt does not need to be feared, it needs to be respected.
Like fire, it can warm your home or burn it to the ground. The key is knowing how close you can stand without getting burned.
The writer is a compliance, risk and fintech executive.
