Jonathan was called for a quick meeting over the phone last week. That was it. His employment terminated within 30 minutes after settling the dues and Covid-19 has created yet another unemployment. However, Jonathan expecting the termination and wasn’t surprised about the proceedings. He was expecting this announcement from the last week as the company sales are on a rapid decline. And, layoff termination was on the card. When I called him last week Jonathan was pretty confident that he can still survive the pandemic economic impact without much constraint. It was fascinating to talk to him.
” Anna, I invested 100,000 $ sometime ago over compound interest account, and I can survive another six months without much difficulty. It was the wisest decision I made, I can continue to fund my kids to have private education “
Jonathan is probably one exceptional American here. There aren’t many regularly save or investing. And, this term “compound Interests” is a crucial money term that can potentially grow your money into hundreds or even millions of dollars. The conversation I had with Jonathan made me realize this is a money growth hack anyone can master.
Unfortunately most Americans do not understand the term “Compound Interest”. This in fact confirmed by ValuePenguin, which asked 2000 Americans the money term of “compound Interest” and around 69% said they do not understand It.
“Compound Interest” is a powerful money-making technique that can create real wealth for anyone. You must understand the concept of compound interest before your jump into investment.
“My wealth has come from a combination of living in America, some lucky genes, and compound interest” – Warren Buffett-
What Is Compound Interest?
Simple words compound interest can describe as “interest on interest“. In compound interest, Interest is calculated on the accumulated interest over time as well as on your original principal.
Jonathan was absolutely correct. Compound interest is a faster method to grow the sum of money than simple interest.
This can be earned daily, monthly, quarterly, or annually. In comparison compound interest return your wealth to grow faster. It’s also why you don’t have to put away as much money to reach your goals.
If you are not convinced, hold on let me put you an example. This is from the old Facebook post from 2010
- Ben invests $2,000 per year between the ages of 19 and 26.
- Arthur invests $2,000 per year from the age of 27 until he retires at 65.
- Both guys earn a 12% return on their money.
- Ben has saved a total of $16,000, while Arthur has saved a total of $78,000.
- But Ben is worth a lot more by the end.
- This table:
Simple Interest vs Compound Interest
|Simple Interest||Compound Interest|
|Simple interest paid over a certain period is a fixed percentage of the principal amount||Compound interest accrues and is added to the accumulated interest of previous periods; it includes interest on interest|
|Grow at a slower rate||Grow at a faster rate |
|Simple interest is calculated by per initial principal amount only.||Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one|
Let me tell you, Component Interests will not drive your way to wealth instantly. This is a common mistake millions of Americans and others elsewhere in the world make.
Jonathan said our system thought us to believe that if you work harder, smarter, longer your chance of achieving financial dreams is possible.
But it constantly reminds me that your paycheck will not grant your freedom no matter how big it is. I have learned that paycheck wasn’t the answer to my dreams.
Jonathan is a fine example that investing money on compound interest can help you save hundreds of thousands of dollars for your retirement, safety, or have a better life balance. This is an absolutely brilliant story of compound interest and how you can grow your money over a period of time most of the people seem too hesitant to save money and do not think money is the way to give you freedom at the time of retirement compound interest.