Compound Interest: The 8th Wonder of the World

Life, Money and Gratitude # 54

How to turn a little into a lot, without much work. compound interest

Let's say you had $100 and it compounded monthly at 10%, this is what it would look like after 12 months.

Month 1:  $100 + $10 (10% interest) = $110.0  

Month 2:  $110 + $11 (10% of 110) = $121.0

Month 3:  $ 121 + $12.1 (10% of 121) = $ 133.1

Month 4: $ 133.1 + $13.31 (10% of 133.1) = $ 146.41

Month 5: $ 146.41 + $ 14.64 (10% of 146.41) = $ 161.05

Month 6: $ 161.05 + $ 16.11 (10% of 161.05) = $ 177.16

Month 7: $ 177.16 + $ 17.72 (10% of 177.16) = $ 194.88

Month 8: $ 194.88 + $ 19.49 (10% of 194.88) = $ 214.37

Month 9: $ 214.37 + $ 21.44 (10% of 214.37) = $ 235.81

Month 10: $ 235.81 + $ 23.58 (10% of 235.81) = $ 259.39

Month 11: $ 259.39 + $ 25.94 (10% of 259.39) = $ 285.33

Month 12: $ 285.33 + $ 28.53 (10% of 285.33) = $ 313.86

So we went from $100 to $313.86 in twelve months.  That is the power of compounding. The more you get this to work for you the better.

Keep in mind if you borrow money, this model is flipped upside down and the bank or lending agency is making that money.  So your $100 purchase turns into a $300 cost.  

Currently the average interest rate on credit cards is over 23%.

Until next time, God Bless and be well. compound interest

compound interest

M. Joseph Benric is the author of Graduation Gift , A Step-By-Step Guide to Financial Literacy for Young Adults

Be a positive influence in a young person's life, gift them a copy and help them on their journey to financial success.