is when you earn interest on your interest. Simple concept. Massive impact.
Simple vs. Compound
| Type | How It Works |
|---|---|
| Simple | Interest only on your original amount |
| Compound | Interest on your original + previous interest |
$1,000 at 5% compound interest:
- Year 1: $1,050
- Year 5: $1,276
- Year 10: $1,629
- Year 30: $4,322
The Magic of Time
| Years | $1,000 at 7% Becomes |
|---|---|
| 10 | $1,967 |
| 20 | $3,870 |
| 30 | $7,612 |
| 40 | $14,974 |
The Rule of 72
Quick trick: Divide 72 by your rate to find how long to double your money.
| Rate | Years to Double |
|---|---|
| 6% | 12 years |
| 8% | 9 years |
| 10% | 7.2 years |