Do you realize, the sooner you start saving, then another, and gain great benefits you will get! $100 you save today at the bank, would not be $100 again after 10 years but will be $162.89 (with a return of 5% per annum). How did it happen? The answer is COMPOUND INTEREST! It is the greatest wealth of weapons.
Below is an illustration of compound interest of 4% per annum with capital value is $1,000:
So, how you can use the method of compound interest is to achieve your financial goals? Let's look at some situations below:
(Note: Return on investment accounts profit is 8%)
"Michael was 25 years old with $10,000 in investment accounts. Since then, he never kept longer. At retirement age of 56 years, the money $10,000 was increased to$ 108,676.69. Wow quite a lot!"
"Russell has begun investing in the investment accounts of $100 per month since the age of 25 years. He invested in equipment and it never fails. On his retirement age of 56 years, he has become an investment fund of $148,015.04! More from Michael!"
"Catherine started to invest into an investment account that is a bit late on when he was 30 years old. He regularly invest a total of $200 per month higher than the Russell. When he retired, he became an investment fund of $95,945.30. Slightly less than Michael and Russell."
(The value of investments above is illustrative only and it should be considered together with the inflation rate.)
In conclusion, to use the method of compound interest, the best way is to:
- Start saving early, preferably when you start working.
- Keeping a regular basis every month without fail.
- Always try to increase your savings by saving more than usual (if you have excess cash)
There may be a dispute in a gain of 8% is impossible to achieve every year, but the fact it is not impossible. You can diversify investments (not just depend on one (1) investment just to earn higher profits and control losses in the event.
Hopefully, this article is to raise awareness for you to start acting managing your personal finances with better and more effective.