Calculation of compound interest – the secret weapon that all wealth is built
I was always taught to listen carefully to people who are smarter than me. So the interest, as Albert Einstein, one of the greatest thinkers ever to walk the planet Earth, is quoted as saying, "The most powerful force in the universe is compound interest," I believe him. So what is compound interest, anyway? Compound interest is defined as "interest rate is calculated on both the principal and accrued interest." In other words, compound interest, when the money is invested andinterest that has already accumulated more continue to earn interest. It may seem very strong, but when you mix in the most important commodity – time – a simple compound interest calculation is the secret weapon that all happiness is built. Let us join them.
Rule 72
A simple compound interest calculation, which is very useful, is known as Article 72 which states that 72 divided by the annual return equal to the number of yearsa certain amount of money to double. For example, $ 1000 invested and earn 9% per year will be $ 2000 for eight years because 72 divided by nine equals eight.
Using this simple calculation for long periods, you can quickly see the enormous power of compounding. For example, say, 23 years, has invested $ 10,000 in a stock market index fund earning 10% annually. Using Rule 72, the value of the fund will double roughly every seven years. SoIf the 23 years, may apply to continue to compound until it reaches 65, the fund doubled in value by about six times (65 less 23 equals 42, and 42, divided by seven equals six). Doubling six times the original $ 10,000 becomes $ 640,000! Just amazing!
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Compound interest in reverse
Surprising that compound interest can be used to increase our savings can because a financial nightmare if applied to our spending habits. After the payment? Credit cards, pure and simple. When you pay only the minimum on your credit card every month, the balance you have to grow exponentially. Why, you might ask? Because the interest rates that most cards are very high fees, sometimes up to 20% or more. Using Rule 72, the balance will double the 3.6 years of an interest of 20% per year, if not supported. As you can see, thisdoes not take long for the final solution is to be completely out of hand.
Review
Compound interest is the mathematical miracle that allows anyone to achieve financial freedom, regardless of nationality, gender, race, IQ, or economic. A simple compound interest calculation early in your adult life can open your eyes and force you to intervene, while the main ingredient – time – is still at his side. Thus, compound interest to work for youimmediately turn into a success.
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