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COMPOUNDING
INTEREST-PUT YOUR MONEY TO WORK!  Compounding interest is one of the most powerful tools you can leverage to develop wealth. It causes your money to work even harder for you than you could ever work for your money. The power of compounding interest allows someone who invests a small amount of money consistently to become a millionaire by the time they retire. The
beauty of compounding interest is that a person's initial investment earns
interest. The person then begins to additional interest on the initial amount
invested plus the interest. Year after year, the initial investment
builds momentum because of all of the interest earned over time. The more time
one has allowed her money to accumulate interest, the more powerful the results
of compounding interest.
Here is
an excellent example of the amazing power of compounding interest from Robert
Allen's book, Multiple Streams of Income:
Nancy
puts a dollar a day away under the mattress for her son Mark everyday from when
he was born until he is in his sixties. By the time he is in his sixties, he
would have around $25,000.
If Nancy
would have put the same amount of money in the bank (one dollar a day) with 3%
interest, the money would total approximately $75,000 by the time Mark is in his
sixties.
If Nancy
invests the same dollar a day for Mark with 5% interest, when is ready to
retire, he would have approximately
$200,000.
At 10%
interest the same amount of money grows into $2.75 million
dollars!
At 15% percent interest, the money Nancy
invested for Mark would be around $50,000 million
dollars!
This
simple example incorporates two of the most important aspects of investing,
consistency and time. The dollar amount was not large to begin with, but Nancy
consistently invested the money with the knowledge that the money would multiply
exponentially for her son. Time is crucial when investing, the sooner you
begin, the greater the amount of money you will have when you are retirement
ready. Time is of the essence when it comes to building wealth so you must
start today!
One of
the easiest ways to start investing is to enroll in your company's 401(k)
especially if there is a match. If your company matches .50 cents for every
dollar you invest, you are receiving a 50% percent return on your money! There
are little investments offering that amount of return guaranteed. You can not
afford to pass this up.
Think
of investing like the farmer who takes a portion of the seeds from his crops and
plants them. The seeds represent only a portion of his total crop but, in time,
those seeds will reap a bountiful harvest which will also provide more seeds for
future crops. Think of your money like seeds that you can use to create more
return for you in the future.
Make Wealth Happen by earning higher interest on your money!*Enroll in an online bank and open a savings account. Most banks do not require a minimum amount to open an account.*Take advantage of your company offered 401(k) plan.*Invest in government offered tax lien certificates.*Allocate money that you will not be using in the next several years to mutual funds.Now that you understand the power of earning interest (instead of paying it), you can now focus on creating passive income! |
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