The Power of Compound Interest
Compound interest means when you earn interest on your principal investment, as well as on interest added to the principal you may have accumulated.
The power of compound interest is so famous since Albert Einstein time when he called it the 8th Wonder…memang dasyatttttt
How compound interest works? Compound interest means when you earn interest on your principal investment, as well as on interest added to the principal you may have accumulated. The addition of interest to the principal is called compounding.
With this compounding rule, it means the earlier you start saving, the greater the interest accumulated on your original investment. The power of compounding can make assets grow much faster.
It can work for you if your invest. However, it will work against you if you borrow such as overdraft loan or credit card loan. You probably end up paying more interest if you delay paying the compounded interest loan.
Back to how compound interest could make your assests grow faster, this can be explained with the example below.
There are 2 guys invests their money to an investment that giving interest of 8% per annum.
- Person A: Invest RM3k per year started at age 18 and stopped at age 27…total investment is RM30k
- Person B: Invest RM3k per year started at age 28 continuously until retired…total investment is RM84k
It is clear that Person B invested more money than Person A…will that mean Person B is having more money when both of them retired at age 55?
Look at the graph below and you will know the answer. Even though Person A only invested RM30k, which is RM54k less than Person B, the total investment for Person A has become RM405k, that is RM100k more than the Person B..no wonder Einstein called it the 8th Wonder.
so PLEASE! PLEASE! PLEASE! let your children know how important to start saving NOW…and let it compound!