Compound Interest
Albert Einstein said compound interest is the 8th wonder of the world. A genius of our time making such a bold statement and says “He who understands it, earns it and he who doesn’t, pays it”
What businesses are the richest of the all? Who has the biggest buildings in every single country of the world?
The banks!
What do they charge you on everything they do?
Interest!
Skip below for the video...
Why the rich get richer and the poor get poorer?
One main cause of this is compound interest.
Most people in North America strive to get a home and with that a mortgage usually. Let’s use that as a quick example to give you an idea of how powerful this really is.
Let's say the average yearly appreciation on homes in the area is 5%. If we bought the house for $400,000, which means at the end of the year the house should appreciate by $20,000. (400,000 x 5% = 20,000)
Over the next 30 years it would appreciate to being worth $1,728,776.95.
At the same yearly appreciation of 5%, the house now this year gains in value by $86,438! Almost 25% of the original purchase price and will continue to be more each year.
You can see when you get to this position; it gets much easier to accumulate money.
Save More Than You Spend
This can be applied to any investment and that is why reinvesting your profits into a working system is a very smart decision that will reap big time rewards.
On the other hand, the financially poor, are not saving and investing profits. They are paying only the bills, consuming more than they can afford and never have any extra to save.
This gets them into the opposite effect to have to pay interest and compounding not working in their favor. (Exactly what the banks want from you) This will usually require you to pay more for things in general and then interest continuing to build up and become more and more.
It is impossible to get financially secure this way, unless you have a big windfall of cash. Also, many in these situations end up borrowing money and paying high interest.
Reinvest Your Earnings. A Little Can Add Up to A lot!
Make sure you save, invest, and compound your profits! This is how you get up to an abundance of growth that is really hard to slow down.
If you look at Warren Buffets net worth chart, who is an advocate for compound interest and one of the richest people on earth. His earnings continued to grow but for many years at a very slow and small rate. Eventually it skyrocketed because the machine of compounding started to really take effect. Now each year it grows at an unbelievable rate and amount. This is why he is so frugal with money because he knows the value of each dollar that is compounded, how much it can grow to in the long run.
If you double $1 20 times you would have over 1 million dollars.
Make sure to be on the right side of compounding interest. It is usually working with you or against you. You’ll be thankful you applied it when your interest is paying you more than you can know what to do with it.
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