Becoming a millionaire with the power of compound interest

in #money7 years ago (edited)

"Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it."

Not many people understand or even know about the power of compounding interest. It is an essential tool used in the financial world and can be used to mathematically predict future balances. The idea is simple, you earn interest on top of interest previously earned, creating a snowball effect. Using this concept, Warren Buffet turned Berkshire Hathaway into a multi billion dollar investment fund in a matter of decades achieving an average of 21% annual return.

There are 3 variables:

  • Starting amount
  • Interest gained per period
  • Amount added per period

Have a look at these examples. Over the course of 30 years example 2 will end up with $2.1 million more (almost twice the amount) than example 1, just by starting with an extra $9000.

Now consider the next set of examples. The only difference in these 2 examples are the annual return.

As you can see the annual interest gives a multiplier effect, the ending balance of example 3 is 22 times greater than example 4, even though the annual interest is only twice as much. This is the compounding effect.

The next image proves annual interest is much more important than the starting balance, so if you don't have much capital don't worry, you can still become a millionaire by the time you retire:

Here is the formula if anyone wants to play with the figures themselves:

Note: "C107" is a cell reference to SB

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@j-bex thanks for this informtaion this is something i really didn't know and appreciate your post your a great person thanks for the time you put into this

@jimjam1210 Thank you :) this is my first post and planning to do more

great stuff look fw to it , please give my comment an upvote is possible ?

I have done my friend, $4.50 by the looks of it haha :)

wow wicked thanks brother your so kind

Good explanation. Didn't really know about this stuff.

Cheers man, it's an interesting concept, people think it's a linear path to a million but really it's all proportional

very interdasting, thanks you

Without having so much capital it minimize your chances, in my opinion.
Good elaboration :)

What is the interest rate for checking/savings at your bank? It is not 10 - 20 percent!

If you consider saving money in a bank an investment then you don't deserve to be a millionaire

I am working with the #promo-uk team and @stephenkendal to promote steemit on a UK tour around 22 universities during freshers week! As a promonent UK steemian, we would like to ask for your support and if you have time, even to come and join us for whatever time you can spare at your nearest university!

The tour started in Manchester today, does a trip around the country and ends up in Lancaster on 07th Oct.

THIS link will show you the tour route, meeting times and meet up locations.

THIS link shows you our success around Manchester today!

It would be really great if you could make it to one of these promotional events to have some fun talking Steemit and letting people know how great it is!!

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HERE is a summary of our last meetup

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