is when you earn interest on your interest. Simple concept. Massive impact.
"I invested $5,000 at age 22 and forgot about it. At 62, it was worth over $100,000. I didn't add a single dollar—compound interest did all the work."
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 |
Pro Tip
Your money nearly doubles every 10 years at 7%. After 40 years? Almost 15x your original—without adding another dollar.
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 |
It Works Both Ways
Watch Out
Compound interest builds wealth when it's working FOR you. It destroys wealth when it's working AGAINST you.
Real Example
A $5,000 balance at 20% APR, making minimum payments:
- Takes 30+ years to pay off
- Costs $12,000+ in interest You pay back nearly triple what you borrowed.
The Bottom Line
Quick Win
The most important factor is TIME. Starting at 25 vs. 35 can mean hundreds of thousands in difference by retirement. There's never a better time to start than today.