I have been away from Steemit for around a month working on my MBA exams and am very excited to be back!
Amongst all the other interesting things I learnt while studying(most had to do with money) one of the most potent is also one of the simplest. Compounding interest.
(
Have you at any point wished for more money without putting in work? Or are you worried you won't have enough aside for retirement or your kids education?
Fear not, fortunately,compounding interests is a basic method to achieve those things by putting your cash to work for you. The magic of compound interests can help you exponentially grow your riches.
WHAT IS COMPOUND INTEREST?
Compound interest can be defined as interest calculated on the initial principal and also on the accumulated interest of previous periods. Think of it as the cycle of earning “interest on interest” which can cause wealth to rapidly snowball. With compound Interest, a deposit or loan will grow at a faster rate than simple interest(interest calculated only on the principal amount).
Not only are you getting interest on your first investment, but you are getting interest on top of the interest! You see how your wealth can grow exponentially this way right?
Example of compound effect at work
For instance, you put $2,000 in the bank. If interest is set at 5% annually, the bank will give you about $100 in interest for the first year of your investment. If you leave that $100 in your account, it will start earning interest, too. The following year, your $2,100 principal balance will earn $105 in interest. Over time, this phenomenon turns into the powerful magic of compound interest.
Not only are you getting interest on your initial investment, but you are getting interest on top of interest! It’s because of this that your wealth can grow exponentially through compound interest, and why the idea of compounding returns is like putting your money to work for you.
WHY IT’S IMPORTANT TO SAVE NOW
The key ingredient that makes compound interest such a good wealth generator is TIME.
"The simple fact is that WHEN you start saving outweighs how much you save."
And if the investment is left untouched for a long time, the amount will greatly multiply even without adding any extra investment.
I am very excited for this new knowledge and am actively looking for ways to compound interests faster than at an annual rate. Who knows, weekly, maybe even daily. I will keep you guys updated.
Note: trading cryptos is looking like a viable option for daily interests.