Compound Interest aka Wealth Builder
The days of thinking a 50 dollar pair of pants is only worth 50 dollars… are over. That’s only the present value; the potential value is 4-5 times greater if you can grasp this: invest your 50 dollars over 20 years, gaining an average 8% interest, and after 20 years it will grow to 250 dollars! Those pants don’t cost you 50 dollars, they really cost you 250 dollars. If the pants are worth 250 dollars to you today, then buy the pants. This is straight out of Darren Hardy’s book, The Compound Effect.
Go to this compound interest calculator and begin plugging in numbers. See what happens if you contribute 100 dollars a month for however many years you choose, and use 8% interest. After that, use 10% of your monthly income as the amount. Then, change it to a different number of years- just play with it. The initial balance isn’t very important because most people don’t have an initial balance (nest egg, savings account. If you do, great.) Don’t keep reading until you experiment with the calculator, it’s crucial you understand the method. Don’t be a fool and skip over this. Slow down, read it again, and understand this concept; don’t just skim over it.
Simply saving money, hoarding cash, doesn’t accumulate any kind of wealth. It just guarantees your money will still be there. You want your money to work for you; to multiply itself as you earn it. As George Clason says, “Your gold should become your servants and work for you.” This is called investing. Investing = compound interest. It allows your money to multiply as it grows.
Compound interest is one of the ways to financial prosperity. You can’t save yourself to wealth, but you can invest your way to it. In the words of a great man, “If I had known this at a young age, I would be so wealthy. But I didn’t know.” This is your warning: Start investing.