I could write about this topic, thousands of words. But that not the goal of this short article. It should show only how it works and how to use it for your own benefit.
8% yearly interest
1000$ Initial Investment
20$ Monthly Contribution
30 years holding time
After 30 years of interest farming, we are holding now 37250,63$.
What does it mean?
In total, we bring in over the 30 years 8200$ ( 240$ yearly). So 29050.63$ in total earned in interest over 30 years. Think about it starts with 1000$ + 20$ monthly and ends up like this.
Why compound does working like that? It's easy. Every new money that comes with interest rates, comes to the savings and generates interests too.
That's the reason it's all about the long-term. Sure 8% are high, but not impossible to get. Not from banks for sure, but with investments it is possible. 5% are also good.
Some other Interesting facts about compound interest:
With 8% p.a, it needs:
9 years to double the money, 1999$
18 years to 4x the money, 3996.02$
and 30 years to 10 x the money, 10062,65$
What do we learn from this? Money today is more worth as money tomorrow. Also, things speed up with time. And time is valuable.
How does the Math work?
In general, it is simple:
Cash ( 1 + Interest rate/times compound interest per year^(times compound interest per year*time in years)
It would like like this:
1000$(1+0,08/1)^(1*30) = 10062.65$
Wait you tell me I need math for it? Good buy and thank you for wasting my time
It's only you know how it works. There are calculators like:
So the calculators do all the work :)
The calculator can be fun to play with. So have fun try some things out.
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