2 Friends Invested Ksh5K Monthly; One Made Ksh32M While the Other Got Ksh2M - Here is Why

“Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it,” the great scientist Albert Einstein once said.

Warren Buffett, the sixth-richest man in the world with a Ksh20 trillion ($154 billion) fortune, swears by the power of compound interest.

The Money254 team put this tip to the test. We used the examples of three friends who start investing in their retirement at ages 25, 35, and 45 - respectively. 

For purposes of this calculation, we assumed that each investor puts in Ksh5,000 every month towards their retirement kitty. The money is held in a low-risk investment vehicle with an average annual return of 12% - which is in line with prevailing market rates on MMFs, Sacco deposits, retirement schemes, etc. 

Now meet the investors. Achieng starts investing at the age 25 with Ksh5,000 and topped up Ksh5,000 monthly. 

The second investor, Makena, starts saving and investing at the age of 35 with the same setup.  Njoki starts her retirement kitty at the age of 45 - also saving Ksh5,000 every month. 

All three investors intended these investments for retirement, meaning they would access their funds at age 60. This gave Achieng’ a 35-year investment period, Makena 25 years, and Njoki 15 years.

The Results

Using a compound interest calculator:

• Achieng accumulated Ksh32.5 million after 35 years, starting with a Ksh5,000 deposit and contributing a total of Ksh2.1 million. Her total interest amounted to Ksh30.4 million, reflecting a time-weighted return of over 6,400%.
  
  
• Makena reached a total investment value of Ksh9.5 million over 25 years. Her Ksh1.5 million in contributions earned Ksh8 million in interest, marking a time-weighted return of 1,878%.
  
  
• Njoki ended up with Ksh2.5 million after 15 years, having contributed Ksh900,000. Her interest earnings amounted to Ksh1.6 million, yielding a 499% return.
  
  

Interpretation

By the time they all retire at age 60:

• Achieng will have Ksh23 million more than Makena. This means that with a Ksh2.1 million principal, Ksh600,000 more than Makena, Achieng earned an extra Ksh23 million under the extra 10-year time-weighted return rate.
  
  
• Makena, on the other hand, will out-earn Njoki by Ksh7 million. This means that with her Ksh1.5 million principal investment, Ksh600,000 more than what Njoki staked, Makena earned Ksh7 million extra under an extra 10-year time-weighted return rate.
  
  
• Achieng’s earnings will exceed Njoki’s by Ksh30 million. This means that the 20-year difference between the beginning of their investment journeys resulted in a principal investment difference of Ksh1.2 million. This translated to an interest return difference of over Ksh30 million.
  
  

Lesson Learned

This experiment shows that financial stability doesn’t happen overnight—it’s built through small, intentional habits practiced over time. Here are the four lessons learnt;

1. Start Early & Be Consistent – Even When the Amounts Are Small

The earlier you start saving or investing, the more time your money has to grow thanks to the power of compound interest. Even small, regular contributions can accumulate significantly over time. Consistency is key—make it a habit. Don’t wait until you have a large income or surplus. Starting small builds discipline and momentum, which are far more valuable in the long run than waiting for the “perfect time.” For instance, Warren Buffett bought his first shares aged 11 and filed his first tax returns at 13.

2. Automate Your Savings

To avoid the risk of defaulting on contributions, set up automatic transfers from your main account to your savings or investment accounts. Automating removes the temptation to spend and makes saving effortless. Treat your savings like a recurring bill—non-negotiable. It also helps you stay disciplined.

3. Put Your Savings Where They Earn Interest

Don’t let your money sit idle in an account that doesn’t yield any return. Move your funds to high-yield savings accounts, money market funds, or fixed deposits. This will catapult the compound interest rate over time, making your money work for you.

4. Have an Emergency Fund

Life is unpredictable. Medical bills, car repairs, or job loss can hit when you least expect it. An emergency fund gives you a financial cushion and prevents you from going into debt or dipping into long-term savings during crises. Aim to save at least 3–6 months’ worth of living expenses in a separate, easily accessible account.