What if I told you there is an 8th wonder of the world? Would you believe it? Well, there is – and it is called compound interest. Albert Einstein once said this about compound interest “He who understands it, earns it; he who doesn’t, pays it.” ”The beauty of compound interest is that it allows you to earn interest on your interest – so that while you have to sweat to earn the money you initially invest, from then on your money works on your behalf.”
These words could not be more accurate. Compound interest paves the way for long term investors to grow their money exponentially, even if they do not have thousands to invest each month. You must be willing to play the long game, as time is the key component to growing your money and creating wealth. This is a game changer – a true way to change your financial situation and your family tree. If you have no consumer debt and you have a 3–6-month emergency fund, you should give serious thought to hiring a certified financial planner and discussing how you can invest your money in a way that takes advantage of compound interest and builds wealth.
If you need a financial coach to help you organize your finances, email me at: or I also do speaking engagements on personal finance.
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I am a financial coach that focuses on improving personal finance behavior. I do not sell investment products or manage investments.
If you are investing or thinking about Investing you don’t want to miss what i Have to talk about today [Music] What’s up everyone thank you for Stopping by the achieve financial Coaching channel where we believe in Breaking the chains of debt and talking About all things related to personal Finance Today i want to talk to you about a Wonderful concept it’s called Compound interest if you don’t know much About it or maybe you know a little bit About it I want to walk you through a scenario That will allow you to See the power of compound interest Please subscribe to the channel Like the video share with friends and Drop a comment let’s get started so as Always i like to start these videos with One or two concepts and today i want to Talk to you about two real quick So compound interest compound interest Is the interest on a loan or deposit Calculated based on both the initial Principal and the accumulated interest From previous periods So different than simple interest so you Get The interest not only on your principal But the interest that you earned In the following year you you get
Interest on that as well The next thing is a very quick way to Sort of calculate How long it will take your money to Double so they call it the rule of 72. So just a simple way to calculate how Long it takes for your money to To double and the way you do that is you Take 72 and you divide that by your rate of Return so for example Um let’s say you’re getting a 10 return We’ll use that in an example today You take 72 divide that by 10 percent And Your money will double every uh roughly Seven years a little bit more than seven Years Now let’s do a comparison between two People who will start working On the same day they are the same age And they will work for the same length Of time they’re going to work from the Age of 22 To the age of 62. so 40 years one is Early early And one is later on larry so let’s just See what time does And compound interest does to your Investment when you start Investing early versus waiting a little Bit and then starting to invest a little Bit later on So let’s start with early early right
Out of the gate First day at work erleen decides she’s Going to start putting money Into an investment or a 401k and she’s Going to put 300 A month in this investment and she’s Going to do that For the first 15 years of her career so From the age of 22 To the age of 37 arlene starts to put 300 a month into an investment whether It’s the 401k or whether it’s a regular Investment Doesn’t matter in this scenario now After 15 years So from the age of 37 to the age of 62 She doesn’t contribute another dime so She only does this for 15 years In that 15 years she’s out of pocket she Only contributed 54 000 but at the end of 15 years She’s amassed over 120 000 She lets that money grow and we’re gonna Assume For sake of this example that they’re Getting a 10 return So she lets her roughly 120 000 grow and By the time she reaches retirement She has 1.3 million dollars Starting early investing in the first 15 Years of her career Putting in only 54 000 and then letting That money grow again Over another 25 years or so has amassed
Her 1.3 million dollars that is the power of Time And compound interest so she’s getting a 10 Return so every seven years that money Is just doubling And then doubling again and you can see If the earlier you start The better shot you have at amassing a Huge nest egg At the end of your working career now Let’s turn around and take a look At later on larry so larry’s busy the First 15 years of his career he’s bought A couple of cars He’s bought a condo he didn’t like it he Tried to flip it didn’t work Anyway he works for 15 years and He decides at the age of 37 after having A conversation with earlier lean that He better get started because he hasn’t Done anything no investments no 401k So what he does is he decides he is Going to put 750 A month starting at age 37 Into his uh investment and he’s going to Do that from the age of 37 to 62. so for 25 years Later on larry decides he’s going to put 750 A month into this investment or this Retirement fund That is two and a half times more than
What arlene put in And he’s contributed contributing over a Longer period of time After 25 years he’s actually came up With 225 000 Out of his own pocket and at the end When he turns 62 and he’s ready to Retire He is amassed 932 000 So a lot less than erleen who started Early And contribute a lot less both out of Pocket and she contributed for a much Shorter period of time but because she Started so early She has much more money than later on Larry so when we line these Comparisons up between these two you can See That arlene starting at 22 years old Made the difference in this scenario Even though later on larry contributed Much more than she did Early early starting early allowed her To get the gold star Herlene started at 22 years old larry Started at 37 years old Erling contributed for 15 years Later on larry contributed for 25 years Erleen put in 300 a month later on larry Put in seven hundred and fifty dollars a Month again two and a half times What erleen contributed and he Contributed for a decade longer than she
Did Total contribution later on larry put in 225 000 early earline put in 54 000 when they reached retirement early Arlene had 1.3 million dollars and later on larry Had 932 thousand dollars So erleen had 373 thousand dollars more In their retirement and she only Contributed fifty four thousand dollars But again compound interest in time is Your friend Larry actually contributed 171 thousand Dollars More than earline did and his retirement Is still 373 thousand dollars smaller larry has a Great retirement But erleen getting started and giving Her money Time to grow getting started a little Bit earlier and giving your money time To grow Time allows compound interest to work Magic On your money so i hope that scenario Allows you to see the power of time And compound interest and what it does To your investments You don’t have to be a young person to Take advantage of this The key is leaving your money in an Account
For a long period of time that is Growing at a pretty decent Interest rate right so even if you’re 30 40 or 50 if you’re gonna leave money in An investment account For 5 10 15 20 years it just allows your Money to grow And it allows you to build more wealth You should really think about getting Into an investment If you’re not doing so right now Building towards your retirement and Establishing wealth for your family Do it wisely don’t jump into things you Don’t understand But you really should get in and take Advantage of this compound interest Remember this you can achieve much Greater things than where you are today If you’re willing to put into work Conceive it believe it and achieve it if You enjoyed this video Please consider subscribing to the Channel liking this video Dropping a comment and sharing with Friends check out some of my other Videos as well see you next time
