"The eighth wonder of the world, compounding :- Einstein"

Probably when I was seven or so I took this book out of the Benson library called 1000 ways to make $1,000. And one of the ways in this book was having Penny weighing machines. I sat and calculated how much it would cost to buy the first weighing machine and then how long it would take for the profit for that one to buy another one, I would sit there and create these compound interest tables to figure out how long it would take me to have a weighing machine for every person in the world. I had everybody in the country weighing themselves seven times a day and me just sitting there like john D. Rockefeller, Wayne, Michigan. The allowance when I was a little boy, it was a nickel a week. But I liked the idea of having more than a nickel to work with. And I went into business very early. I started selling Coca Cola door to door I sold going door to door. So Saturday and post Liberty magazine, ladies home journal, you name it. I think I enjoyed the game almost right from the start. But I like being my own boss. That's one thing I liked about delivering papers. That got a range the route I wanted to nobody was bothering me at five or six in the morning.

I was delivering 500 papers a day and I made a penny of paper but in terms of composite pennies turned into something else.

Einstein is reputed to have said that compound interest is the eighth wonder of the world or something like that. And it goes back to that story you probably learned when you were in grade school where somebody did something for the king. And the king said, What can I do for you? And he said, Well, let's take a chessboard and put one kernel weight on the first square, and then doubled on the second and doubled it on the third and the king readily agreed to it. And by the time we figured out what to do the 64th how to do was giving away the entire kingdom. So it's a pretty simple concept. But over time that accomplishes extraordinary things.

                                                                                       _ By Warren Buffett 

The effect of compounding works by exponentially increasing your money. It adds the profit received back to the principal and then reinvests the whole amount to speed up the profit generating process. Assume you put $1,000 in a bank that pays a 10% annual interest rate.