The Power of Compounding!

Compound interest is like a double reward for not spending everything you earn each month. It lets you you earn interest on the savings you deposit, and on the interest you have already earnt. Basically it means that you earn interest on interest!

I'm sure we all remember something about it from our school days, the sweet looking (yes, I am a bit of a maths geek) little formula below:

Now I don't want to go into the formula in any great depth and give you a lesson but rather quickly show you how this process can make you rich.

Compound interest coupled with time is key to building your wealth.

Let's say you start saving $200 a month at the ripe old age of 30. You could amass more than $398,000 (assuming an annual return of 6 percent) by age 70. However if you wait until your 31 to start, though, and you'll have about $25,000 less. That's the power of compounding.

Compound interest also works in reverse with loans as well. If you spend 30 years paying off a $300,000 mortgage at a 5 percent rate, and you would pay nearly $280,000 in interest charges. However, if you send just ONE extra payment a year, and you'll shorten the life of the loan by more than FOUR years while saving nearly $50,000 in interest.

What I'm trying to say that is when it comes to working towards your financial goals, whatever they might be, start now and make compound interest your bitch to reach them quicker!