Compounding interest is very powerful. If you learn and practice to use the power of compound interest, then your investment will grow larger. So, it may create wealth with just require some time and dedication only.
Imagine that you are 20 years old now and you place RM100 every month in an account that earn you 2% annual interest. In just 5 years when you reach 25, you will have RM 6415.24 in your bank account which you can use as a down payment for your first car.
If you decide not to use the money in 5 years time but continue to save RM100 every month for 15 years, you will have RM 21106.25 when you are 35 years old. You may then use this as an initial deposit towards your first property investment worth RM250,000 perhaps.
You can try to calculate your initial principal and monthly contributions using my created MS Excel here. You can also practice this by changing the values to see how your money would multiply using the power of compound interest rate and a monthly contribution.
Reason Why Compound Interest So Powerful?
The reason why compound interest is so powerful is because not only you can earn interest on your principal balance, or the money you started with but you also can earn interest on your interest. If you are looking to grow wealth over a long term period, compounding will definitely work for you.
In fact, if you are thinking for long term, the money that you earned off of the interest alone can be greater than the principal at the beginning.
So, what’re you planning to do? You can lend your money to your friend and charge them annual interest, your friend would owe you increasingly more under this compounding interest method. Hahaha…