The Magic of Compound Interest

Let your money reach it’s full potential with compound interest.

According to Albert Einstein, compound interest is the 8th wonder of the world.   Compound interest is interest added to a principle amount, which in turn earns additional interest. To clearly understand compound interest, it is best to contrast it with simple interest.  With simple interest you earn interest on the principle amount only. Taking advantage of compound interest for your investments can significantly increase your investments over time. This is why time is considered the magic factor! The more time you have for your investments to increase, the greater exponential growth you’ll have on your investments!

While there is a benefit to having a lump sum of money growing with compound interest over a long period of time. It becomes even more financially advantageous when you contribute funds towards that investment on a regular basis. You can contribute monthly or set up a small automatic payment with each pay-cheque.

It is often re-iterated by experts that people should start investing at an early age.  Someone who starts saving at age 25 for their retirement, will have 40 years for their investments to grow if they retire at 65.

Regardless, of your age, you should be contributing regularly towards your retirement fund. Often times people in their 20’s or 30’s don’t see a retirement fund as a priority.  It can be tough in the early days of your career when you have a lower income to allocate funds to your retirement. After all, there are so many competing financial priorities, like establishing a decent sized emergency fund, saving for a home and just the basic costs of living on your own for the first time.

Even if you are only able to allocate a small amount, make the effort to do so and then let the magic of compound interest and time do the rest!

 

Posted on February 21, 2016