Today I am going to show you how compound interest can work wonders for your money. I’ll also tell you a personal story of how I had to deal with it in my life, and how it changed my behavior.
“The bigger the coss, the longer the fuse” – Martin Kippenberger
Let’s get started! compound interest.
Before we delve into the world of compound interest, it’s worth defining exactly what it is. Simply put, compound interest occurs when an investor earns interest on previously earned interest. Sounds complicated right?
You've probably heard that one of the easiest ways to grow a savings account is to simply let it sit and compound. Compound interest means that you earn interest on your principal, and then interest on your interest, and so forth. For example, at 10% interest compounded annually, a $100 investment will double in 7 years.
It all becomes clearer when you look at an example of how the amount of interest builds up over time in a compound interest environment. Imagine you had just £1 to your name; you could either spend it or invest it.
If you spent it, that’s it, all gone – overly simplistic but this will give us a good point of comparison for what happens when you invest the money. So let’s say you chose to put your £1 in a savings account. After a year, here’s how much money you will get: In 10 years, you will have $233.34
If you put £1 every month for a year. You are doubling your initial investment with compound interest. It’s pretty cool, right?
Ever wondered how much interest you would need to earn to become a millionaire, or how much time it would take to double your money? Call me nuts, but this kind of stuff interests me. I decided to build a compound interest calculator that allows you to load an initial investment and see how long it takes to reach specific milestones.
This formula is one of the more complex concepts in finance. Understanding the snowballing effect of compound interest is key to increasing your savings, earning more money, and becoming rich. Fortunately, with the compound interest calculator, I built above you can play around with all of the parameters to get a better feel for how compound interest works.
Compound interest is a powerful concept in finance. Contrary to popular belief, it isn’t that difficult to understand. Even though this calculator has some more complex inputs, most people will find it straight-forward and easy to navigate. Click through for an overview of what compound interest is, how compound interest is calculated, and practical applications. You can try running a variety of different scenarios with the calculator as well.
In order to better understand Compound Interest, it is necessary to learn Personal Finance topics.
Why should you learn Personal Finance? That’s easier asked than answered. One of the reasons is that it just makes sense! Whether you are making money or spending it, it’s always good to put into practice some good practical financial habits.
Learning more about personal finance will help you develop these habits and make a lasting impact on your life. You’ll have an incentive to earn more, spend wisely, save for the future — and all this will add up to a better life. Ask anyone who has learned about personal finance and they’ll tell you the same thing.
Who doesn't want to retire early? And I don't mean like in their 60s, I mean quit working and not having any sort of income at the age of 35.
How can we achieve this goal? It’s quite simple actually, by spending less and investing the surplus. But it’s easier said than done, right?
We all know that feeling when you look at your credit card statement and think “how could I have spent that much money?!” or when you dread opening your bank account statement because you just KNOW it’s packed with tons of charges for things you didn’t really need.
It’s not easy to get your head around personal finance. From student loans and spending, through mortgages, retirement planning, and investment options — it’s complex. But that shouldn’t stop you from taking charge of your finances.
There are several strategies out there you can use to help improve your personal financial situation. A lot of people mistakenly think that improving their financial situation is all about saving money. Balance is the best blog I saw on the internet to learn personal finance.
Before making serious investment decisions, you should update your information on blogs like this.
As an entrepreneur, you need a compound interest calculator for the future value of an investment. You invest a certain amount of money now and get back more money than the investment in the future.
This process is called compounding. Compound interest calculator will calculate the accumulation over time, in the form of principal plus additional earnings due to interest being earned on each previous period's earnings. It works on the basic principle that interest earned each year is added to one's initial deposit.
We’ve all heard about compound interest being powerful to our investments. But when we look into details of what is behind it, it can be a bit intimidating. Most of us are not likely to take the pain in getting into complex math.
Fortunately, there are online tools that bring this magic of compound interest calculator to us in simple terms and steps.
They also give us some good visualizations of how things would work out for us depending on the interval and amount invested into an investment scheme.
The tool I showed you above is one of them.
This tool is used for calculating the final value of an investment which has been compounded based on the rate of return as well as the number of periods. We know that compound interest is calculated by multiplying principal and rate to get future value.
But it is not sufficient to start with only the interest rate, the number of periods, and the principal. You need to consider the effect of compounding i.e., a number of times compounded per year or any time period.
We all need money to buy stuff. But why is it important for everyone to save money? Because when we have money in our pockets, we feel safe. This makes us happy – even if we are just saving one dollar at a time.
Storing up money will help us build up some savings for when times get tough. And when we get a raise (say, from 3 dollars an hour to 4 dollars an hour), we can put the extra dollar into savings instead of spending it.
Most people have heard about why it is important to save money, but do they really understand and believe its importance? Saving money is crucial for us to achieve a better financial lifestyle. Here are the reasons why you should start saving today in order to become wealthy:
Long story short, saving money is essential. If you want, you can use compound interest. Or you can consider other options. Or you can be bitcoin. You will find the best method for you yourself.
I also developed the Compound Interest Calculator tool to help you. Hope it makes your life easier.