8th Wonder of the World- Compond Interest

It was just an ordinary weekend where all of us have a small piece of relief and peace from our routine war in the office, Jason's niece came over to Jason's house together with her parents. 

The very moment she saw Jason, she immediately cried out loud which shocked everyone in the house. After a few minutes of comforting her to cool down, she said to Jason :"uncle, u told me the world has a total of eight wonders and during last Friday's classroom small quiz, there is a question asking there are how many wonders in this world and i wrote 8, ended up Jessie that was sitting beside me got it correct and teacher gave him a present. I hate you!  i hate u!" 

Out of the blue she kicked Jason's knee and hide behind her parents. At that very moment, Jason and her niece's parents all laugh out loud. Do you know why? 

Well not to be misleading, this world does only has SEVEN wanders. The 8th wonder was labelled by the late Albert Einstein. That is why Jason's niece got that quiz wrong.

Well what is so special with Compound interest till our late Einstein admit it must be the 8th wonder of the world. This is becauce we cannot underestimate the power that compound interest has. Without it, our savings, investments, credit cards debts wont grow. However if you are not mentally prepared , all that i am going to show you it will just be a myth or hype.

Let's see what compound interest means. Interest that accured when earnings for a specific period are added to principal; thus interest for the following period is computed on the principal plus the accumulated interest. Meaning that if you doesn't spend on the interest accured from your principal and just leave it there thus the next interest will be calculated based of your total capital (principle+interest).

For instant, i save RM10000 into a 12-months Fixed Deposit which gives me an interest of 2.5% p.a. i will receive an interest of RM250 after a year. Given that i doesnt withdraw anything for this fixed deposit and leave it for 5 years, my savings be RM11371.

Year 1- RM10250 (10000+2.5%)

Year 2- RM10506 (10250+2.5%)

Year 3- RM10769 (10506+2.5%)

Year 4- RM11038 (10769+2.5%)

Year 5- RM11314  (11038+2.5%)

 

But if every year i spent the interest from the Fixed Deposit, in the end i only got RM1250 (250 x 5). Compounding interest from the Fixed deposit manage to get me an extra of RM64 to spend at the end of year 5.

Plot these numbers into graph, you can noticed the growth is exponential. Meaning the interest earned is more significant towards the end. Compare the interest gain for year 1 and year 5, you can see the interest gain on year 1 is only 250 while the interest gain on year 5 is 276.

Compound interest never stop working for you, just like Citibank motto's "The Citi never sleeps". All you need to do is not to distub him at work, let him concentrate on doing what he is good in thus in the end he will definitely deliver the magnificent results for your hard earned money.

But how are we going to take full advatange on compound interest? In order to fully utilize the power of coumpound interest, do make sure you provide the ideal working environment for him.

Rule #1- Start saving and investing as soon as possible. Any amount will do.

Rule #2- Let them to be compounded as long as possible. eg, 10yrs, 15yrs, 20yrs.....

Rule #3- DONT FORGET RULE #1 AND #2

To be continued.....