Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t, pays it. – Albert Einstein
Albert Einstein came up in conversation more than once this week: once when I posted the above quote my Facebook Group, Savvy Money Academy, and the second time when my husband and I were driving home from a wedding and he casually mentioned that GPS is incredibly accurate because of Einstein’s theory of relativity.
Since science is my husband’s zone of genius, let’s move on to money…..
With the mention of the term compound interest, one of the brave members of my private group messaged me and wrote “I don’t really know what compound interest is.”
Now, I love teaching women about the magic of compound interest, how they can grow their wealth and own their financial future. It’s something I’m passionate about. I encourage women to become more financially literate, make stronger money decisions and fall in love with their money.
And so, I was really happy when a lady from my group reached out to me. Plus, I also know that if one courageous person doesn’t understand compound interest, there must be others.
In answer to the question, I recorded this 5 minute video:
Understand Compound Interest
We don’t learn about compound interest unless we’re involved in the financial markets, we’ve taken money management courses or we’ve received been lucky enough to hear about it from our parents. In this video, I cover the following:
- Explaining compound interest – Compound interest means that you earn interest on your interest. And if you keep your money invested long enough, you earn interest on your interest on your interest. Your money grows exponentially over time, which is why Albert Einstein called it the eighth wonder of the world. Isn’t that a simple way to understand compound interest?
- Growing your investments – If you have the patience and discipline to leave your investments in place for long enough, they’re going to grow! It may seem a bit slow at first, but with time, your wealth grows exponentially.
- Sharing an example! (That’s so important, isn’t it?) – Let’s assume you invest $1,000 with a 10% expected return. At the end of the year, you’ll have earned $100 of interest, and you’ll have grown your wealth to $1,100. Keep your money invested for another year and it grows to $1,210. And so on. At the end of 10 years, your initial $1,000 investment equals $2,594. And that’s the magic of compounding. It’s not just $100 of interest that you earn every year for ten years, which adds another $1,000 to your wealth. It’s your initial $1,000 plus $1,000 of interest PLUS another $594 of interest on interest. Pure magic!
There’s a catch to this, as Einstein said. “If you don’t understand compound interest, you’re going to end up paying it.” And unfortunately, I see this all too often with people who are in overdraft and folks who have credit card debt. Taking our original example, $1,000 of credit card debt with 20% interest on it means that you’ll owe your credit card company another $200 at the end of the year.
If you let that debt go another year, it will grow to $1,440. If that debt hangs around for 10 years, you’ll will end up owing your credit card company more than $6,000.
And that, my friends, is the power of compound interest going the other way. And trust me, you do not want to be caught going the other way! So, you gather how important it is to understand compound interest.
If you don’t understand what it means to take charge of your finances, invest your money and grow it for the long, somebody else is going to be get rich off your skin.
Moving from how to understand compound interest to investing! I’d like to share an update about my self-study program, The 1K Investor. Five months ago, I created this program to help you uncover what’s keeping you back from investing (like fear) and to give you the information and tools necessary to take charge of your money and start!
The forty women who’ve taken the course have experienced big shifts in how they manage their money, savings and investing.
Investing and growing wealth are no longer scary, but rather, the way women take care of themselves.
Women understand that peaks and valleys are part of the investing process and that long-term investing is the way we create a secure, sustainable financial future.
I’m currently in the process of upgrading the 1K Investor to a full service, comprehensive program that includes live coaching. I’m testing the upgrade now. My students achieved major awareness and breakthroughs in their money mind-set after only the first week. They’re dissolving money shame and guilt and forgiving financial mishaps.
These women are warriors. They inspire me with the work they’ve done. I’m filled with gratitude for the opportunity to support them.
While I’m working on the upgrade, I’ve decided to offer a $50 discount on the existing program. Instead of $97, you can purchase the 1K Investor today for only $47 USD. Use the coupon code FIFTYOFF at check out.
If you’re thinking that the program’s right for you, now’s the time to get it. After I finalize the upgrade, I might not offer the 1K Investor in its current format ever again.
That’s what’s going on in my Einstein, investing world this week.