MAKING THE DECISION TO CONTROL YOUR MONEY (PART 2) REBECCA RICE
Albert Einstein is thought to have
said, “Compound interest is the
eighth wonder of the world. He who
understands it, earns it…he who
doesn’t…pays it.”
Your path to financial security has a Figure 1.1
direct relationship to compounding
interest. Compounding means that
the interest you earn also earns
interest.
If you have $10,000 and it earns
5% interest in a year, you have
$10,500 at the end of the year. If
that interest is paid monthly, it looks
like this: (see figure 1.1)
Figure 1.2
You may look at this chart and
think, “No big deal, that’s only and What if you put in an additional $500 a month to your original $10,000?
extra $14.72.” But look what In 60 years you’d have accumulated $2,356,483.65 when
happens when you allow that compounded annually. Your cash investment would have totaled
compounding interest to grow for $370,000 of that amount. The rest—nearly $2 million—came from
10, 20, or even 60 years.
compounded interest alone.
Your one time deposit of $10,000 Look at what happens when you start with a smaller amount and allow
grew to $199,607.39 without you it to compound for a longer time. In the following chart, you started with
adding one more cent! That’s the only $1,000. Even though it’s 1/10th the amount of the illustration
gift of time and compounding above, with 8% compounding and 40 more years, it’s also grown to
interest. (see figure 1.2)
over $2 million.