One of the most important financial principles is that of compounding. Wise people learn, understand, and use this principle with their finances.

Compounding is the simple idea that as money is saved, interest is paid. Yet interest paid this year, earns interest the next year. So if you earn 10% on a $100 investment, this year you get 10% on $100, but next year you receive 10% on $110. Over time, the principle of compounding leads to remarkable results.

While many learn about the idea of compounding when it comes to finances, it also has other ramifications.

One of the most important areas of life in which compounding is at play is with bad decisions. Few realize the compounding effect which bad decisions have within our lives. (See: How to Respond to Others When They Make Bad Choices)

For example, Sarah makes a series of bad decisions when she is in High School. She realizes her mistakes and works hard to correct them. However, as she spends her early twenties correcting the mistakes from her late teens, she often has to delay learning the lessons and skills the average 20-year-old should be learning. This means she may spend her late twenties learning the lessons she should have learned in her early twenties.

Her early mistakes compounded into more trouble. Of course, when she begins to make wise choices, those choices will compound as well. It’s amazing how radically different life can be after five to ten years of wise choices, but it does take time. (See: The One Piece of Advice I Would Give a 7th Grader)

One of the most frustrating aspects of the pastorate is to watch people make foolish decisions for ten years, have a moment of clarity and begin to make wise choices only to give up after six months because their lives are not perfect.

Because of the nature of compounding and in light of human nature which is prone to make bad decisions, it is vital that we learn one of life’s most important lessons:

When something goes wrong, DO NOT MAKE IT WORSE.

This principle will save a lot of heartache. (See: Please Stop Me From Doing Stupid Things)

One of the greatest mistakes we make is to follow a mistake with a mistake. We choose poorly, experience the negative consequences of our decision, and then make an even worse decision.

How many rebound relationships compound our original heartache?

How many attempts to get out of debt quickly end up adding to our debt?

With human nature, one mistake often leads to another. Wise people are never perfect, but they do realize when a mistake is made they need to be extra cautious to stop the cycle. Without intention, one bad decision often leads to another and then another. Over time, the bad choices compound.

This is why the old statement, “Sin takes you further than you want to go,” is often true. Our bad choices have a compounding effect of negativity on our lives and the lives of others. It is a dangerous reality which we must understand.

We all make mistakes. And we will all experience the negative consequences of our decisions. While we can’t be perfect, we can be wise in knowing of the importance of recognizing bad decisions, admitting them, and correcting them as soon as possible. When we do this, we limit our bad decisions and prevent them from compounding into even more problems. (See: What to do Right When You’ve Already Done Wrong)

Compounding is an important principle when it comes to our finances, but it is far more important when it comes to decision making.

Choose wisely. And when you don’t, do not make it worse.

For more, see:

How Do I Forgive Myself?

What a Child’s Mistake Reveals About a Parent