Plant your seed, water it, and let it grow. For about thirty years. That’s how you get rich quick from compound interest.
“Well that doesn’t seem so quick, I want to make a million dollars overnight – that’s a quick way for to get rich.“
I suppose Jeff Bezos can do that from compound interest – not you or I.
“Michael – I came here to learn how to get rich quick, from compound interest. I’m leaving.“
Slow down!! You wanted to learn how to get rich with compound interest, and I will teach you one of life’s great personal financial secrets. One that every single retiree will share with you. And it is incredibly simple – start saving as young as you can – and let compound interest work FOR you later in life.
When you are 60 years old – would you rather earn 10% on $3,000,000 or on $300,000? Or put another way – would you rather earn $300,000 or $30,000 in interest? Well, the only way to get there is to let compound interest work for you, ASAP. Let me explain…
How Does Compound Interest Work for You?
Over time, an investment that earns compound interest will grow at a faster rate than an investment that earns only simple interest. With compound interest, interest you earn is not only on the original investment, but also on the interest that has accrued. This can result in significant growth over time.
Compound interest is the interest that is earned on the initial investment. And on the accumulated interest of previous periods. It is the most powerful tool for building wealth over time, and it is one of the most important concepts in personal finance.
Compound interest is often called the eighth wonder of the world because of its ability to grow wealth.
Albert Einstein is famously quoted as saying, “Compound interest is the most powerful force in the universe.”
Albert Einstein
You Work For Money? or Money Works For You?
Compound interest can work for you or against you. It is important to understand how it works so that you can use it to your advantage.
When you take out a loan, the interest you pay is compounded, which means that the interest is added to the principal and you end up paying interest on the interest. This can make it very difficult to pay off a loan.
However, when you invest, the interest you earn is also compounded. This means that your money grows at a faster rate than if you simply left it in a savings account.
Over time, compound interest can have a huge impact on your savings. If you start investing early, compound interest can help you build a large nest egg.
Compound Interest Is a Powerful Tool
But it is important to understand how it works before you use it. Otherwise, it can work against you.
Compound interest is the interest that is earned on the original investment, plus the interest that is earned on the interest that has been accrued. This type of interest is typically found in savings accounts and bonds.
The power of compound interest is that the interest that is earned on the original investment is reinvested, and then the interest that is earned on the reinvested interest is reinvested, and so on. This can result in a snowball effect. The earnings on the original investment continue to grow at an increasing rate.
Compound Interest Calculators
- Compound Interest Calculator
- Compound Interest Rate Calculator
- CAGR Calculator
- Continuous Compound Interest Calculator
This compound interest calculator is a tool to help you estimate how much money you will earn on your deposit. In order to make smart financial decisions, you need to be able to foresee the final result. That’s why it’s worth knowing how to calculate compound interest. The most common real-life application of the compound interest formula is a regular savings calculation.
Use the compound interest rate calculator to compute the precise interest rate that is applied to an initial balance that reaches a certain surplus with a given compound frequency over a certain period.
The CAGR calculator is a useful tool for anyone who wants to estimate the gain from an investment. This application bases its calculations on the Compound Annual Growth Rate formula (CAGR formula). If you know how to calculate the growth rate, you can determine the profit of your investment over a particular period.
With the continuous compound interest calculator (or continuously compounded interest calculator), you can quickly compute the final balance of your investment or savings with interest compounded continuously.
An Example of How Compound Interest Works
Here is a great example of how compound interest works, in the real world.
Two teenagers get their first jobs, at age 15
Teenage Saver
Teenage Saver decides they will save their money. All of it.
Saves $2,000 a year for the next five years.
She opens an investment account that grows 10% a year. Compounded annually.
Stops saving after 5 years, at age 20.
Teenage Saver saved $5,000 a year for 5 years.
A total savings of $10,000
Every Other Teenager
Every other Teenager will spend it. All of it.
Spends all of his money.
Decides to start saving at a young age too.
At age 25 he decides to save $2,00 a year for the next 40 years. Same investment as Teenage Saver and earns 10% a year too.
Stops saving after 40 years, at age 65
Every Other Teenager saved $2,000 a year for 40 years.
A total savings of $80,000
On their 65th birthday, both teenagers start wondering who has more money in their savings account.
Who do you think has more?
The answer may surpise you. They both started saving at young ages, so they both did well.
They are both just a few dollars short of being millionaires!!
The difference is Teenage Saver started a few years earlier and was able to stop at a very young age. Every Other Teenager started young, just not as young – so they had to save for a much long period of time.
Teenage Saver
$979,008 AT AGE 65
Every Other Teenager
$973,704 AT AGE 65
Teenage Saver Kept Saving to 65
$2,560,599 AT AGE 65
Both illustrate the incredible power of compound interest. But Teenage Saver shows you the incredible power of starting sooner rather than later. The third column shows what would happen if Teenage Saver kept saving until age 65
Try it for yourself: COMPOUND INTEREST CALCULATOR
Rule of 72
The Rule of 72 is a simple way to determine how long it will take for an investment to double, given a fixed annual rate of return. The rule states that you simply divide the annual rate of return into 72.
For example, if an investment is expected to return 12% per year, it would take 6 years (72/12) for it to double.
This rule is a useful tool for investors because it provides a quick and easy way to estimate how long it will take for an investment to grow. However, it is important to remember that the Rule of 72 is only an estimate and that actual results may vary.
QUIZ:
If your investment will earn 6% return. How man years will it take for it to double?
Answer: Rule of 72
72 divided by your interest rate, which is 6.
72 / 6 = 12
It will take 12 years for your account to double, if it is earning 6% per year.
EVERY TEENAGER NEEDS TO READ THIS.
EVERY TEENAGER NEEDS TO UNDERSTAND THIS.
Please share this with every parent and every teenager you know.
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Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.
The information here is for information purposes only, and not guaranteed to be accurate. The information may not be full and complete. This is not investment, insurance nor tax advice. You should talk with your financial advisor or accountant to figure out which of your options is best for you.
Michaelryanmoney.com does not provide legal or tax advice, and the information provided is general in nature and should not be considered legal or tax advice. Consult an attorney, tax professional, or other advisor regarding your specific legal or tax situation. Michaelryanmoney.com takes no responsibility for the current accuracy of this information.