At Super-Advice we are about all things financial, but more importantly, helping people understand so they can get ahead financially.
If you can understand compound interest, you will become wealthier faster. And you will never use debt ever again apart from probably a mortgage.
So here, here are five things that you should know.
Compound interest is just free money
Compound interest is just free money. It is money working for you.
If we can get you 10% returns on any investment and your original investment is $500.
This is what it looks like..
In year one, your $500 becomes $550.
In year two, it becomes $665.
In year three, it becomes $732.
Remember, it’s just sitting there accumulating 10% interest every year, not only on the original $500, but the little extra returns that you get every year.
Year six. Your $500 has just magically turned into $885
With the 10% return per annum your money can double every seven years.
In year seven, it becomes $974
All the way to 10 years. Your original $500 that you’ve not even touched turns into $1,300. Wow.
Credit cards and personal loans can work against you
Credit cards and personal loans – that’s when compound interest works against you.
Rather than you making the little bit of extra that grows every year, you are giving it to the person you borrowed the money on.
Quick Story, Warren Buffet had a friend of his come up and say she’d come into some money and what should she do with it?
Should she invest it or pay off her credit card? And he said, how much is your credit card interest rate? That’s 18%she answered, Warren simply explained to her that (even) he’s unable to make 18% consistently for his investors! This man is worth billions of dollars and has made lots of money using compound interest with investing, and he doesn’t use debt.
Don’t pay credit card interest. It’s compound interest in reverse, and it’s debt that is screwing you.
Compound interest isn’t new
Compound interest in the whole concept is old.
It’s old. I mean, usury, which is the act of lending out money and then getting it back with an interest rate has been done since the days of the Bible. In fact the good book reads “the borrower is always a slave of the lender”.
That is compound interest working against you when you borrow money.
So save money, get it working for you. Stop borrowing money and have it working against you.
Interest is compounding
The more frequently money is compounded, the faster it grows.. So go and learn more about it and should you invest money, find out how often it compounds and find out how much money you can make.
Albert Einstein once said
Finally, you might have heard of a guy named Albert Einstein. Now he named compounding interest as the eighth wonder of the world, and he is recorded somewhere saying “those who understand it, earn it (and gain financial freedom), those that don’t understand it, pay it. It means they’re borrowing money and paying interest.
That’s a wrap
So what do you think? Has this helped?
If you need any financial help or advice please get in touch with us at Super-Advice.