Wealth and Compound Interest

If you want to become seriously wealthy over time, then you should ensure that the rather nice mathematical effects of compound interest are put to good effect for you over time.

The maths of compound interest show that numbers increase rather nicely once they build up a head of steam, and if those numbers are your bank balance, then compound interest over a number of years can feel great!

What's great about compoud interest is that it is compounded - if that's as clear as mud, it means that you earn interest on your interest. And then the next year you earn interest on the interest of your interest and so on. Bottom line? Over time, the amount of money you have goes up significantly as every year the interest is added to more money than the year before. Nice!

What does this mean for me? Well, there are two key things you need to benefit from compound interest. One is obvious - time. The other is also obvious, but many people don't - ironically - put the time into researching it!

That factor is the interest rate. If you do one thing to help you become wealthy, you must, must, must get your money in the account where it is going to get the best interest rate. Over one year it makes little difference perhaps, but over several years, compounded, the difference in returns can be massive.

For instance, if you invest 100 a month for 40 years at 1% interest and 5% interest, then you have almost 100,000 more at the end of that period of time at 5% than at 1%. Would you turn your nose up at 100,000? Then make sure you are getting the best interest rate on your money possible.

Put away as much money as you can each month at the best interest rate you can get. Forget about that money and only dip into it if it is an absolute emergency. Check back in a few years time and be plesantly surprised!