Use the Force: The Power of Compound Interest

USE THE FORCE: THE POWER OF COMPOUND INTEREST Like the binding and ubiquitous Force of the Star Wars galaxy, compound interest is a power that can be harnessed for your long-term financial success. Learn how to wield compound interest to make your investments grow. SO WHAT IS COMPOUND INTEREST? Compound interest is when earnings are generated not only on your initial investment but also on all previously accumulated earnings – which means interest builds on top of interest. year 1 interest total sum, year 1 initial investment total sum, year 1 year 2 interest total sum, year 2 total sum, year n year n+1 interest total sum, year n+1 HOW IT WORKS: THE LIGHT SIDE OF THE COMPOUND INTEREST FORCE With compound interest, time is your ally. Starting Balance ($) Year Interest ( $ ) Total Sum ($) $46,610 $11,664 $933 year 1 $25,020 year 2 $21.589 year 30 $12,597 Assuming an 8% annual return, a $10,000 investment, left untouched, can double in just 10 years. In 30 years, it would grow to over $100,000, a 10x return! $21,589 $12,597 $1,599 $1,008 $19,990 $13,605 $13,605 year 8 $19,990 year 6 $1,088 $1,481 year 7 $14,693 $18,509 START EARLY TO BECOME A JEDI MASTER OF COMPOUND INTEREST Time is money. The more time you give compound interest to work its magic the better off your investment will. be. Procrastination is your worst enemy for long-term gains. Consider this: if you delayed making your initial $10,000 investment just five years, you'd have about 32% less money at the end of the same 30 year period. Wait 10 years? You would have less than half! Compound interest benefits you more over time. Starting early means your investment has more time to grow. Start now. It may be your only hope. 30 Year Investment $100,627 Delay 5 Years S68,485 32% less Delay 10 Years $46,610 54% less CONTRIBUTE REGULARLY We saw a $10,000 initial investment grow to over $100,000, assuming an 8% annual return. = $10,000 Year 10 $40,363 AAAA Year 20 But if you added $105,917 $100 EACH MONTH, see what happens! $247,441 Year 30 That small monthly addition to your initial investment added over $147,000 to your total value! Staying disciplined in making those contributions will pay big dividends over time. BEWARE THE DARK SIDE OF COMPOUND INTEREST While compound interest can work for you and earn you money, it can also drain your wallet in the form of consumer debt, such as credit cards and student loans. Compound interest is what makes credit cards and loans so difficult to pay off. For credit cards, the interest is compounded daily! If you had a $5,000 balance on a credit card with a 15% APR and paid only the minimum each month, it would take you over 22 years to be debt free... Calendar 15% APR Years ... and it would cost you an additional $5,729 in interest. Don't be fooled by seemingly low APR rates, balance transfers and minimum payments - its a trap! average household credit card debt: $15,799 $5,729 Total U.S. revolving debt: $793.1 Billion $500B $1T MAY THE FORCE BE WITH YOU Though credit cards and low interest loans may tempt you, the Dark Side of compound interest will make you pay-so be diligent in paying off your debts. Once you start investing, stay committed. Don't allow yourself to touch the money you've set aside. You'll destroy the good that compound interest can do for you. Start now and contribute often you must, to become a Jedi Master of Compound Interest. GETWHEREWITHAL.COM SOURCES: Bankrate.com WHEREWITHAL Creditcards.com Federalreserve.gov Investopedia.com Wikipedia.org v98$ 008'0L$ 008$ 000'0L$ $10,800 $11,664 $100,627 $54,017 $46,610| year 3 year 4 year 20 year 5 year 10 $14,693 year 9 $1,175 $15,869 $15,869 $1,270 $17,138 $18,509 $1,371 $17,138