Compound Interest — Time Is Your Greatest Asset

Compound interest is earning interest on your interest. Over time, it creates exponential growth.

Formula:

A = P(1 + r/n)^(nt)

A = final amount, P = principal, r = annual rate, n = compounds per year, t = years

The Rule of 72:

72 ÷ interest rate = years to double your money

At 8%: 72 ÷ 8 = 9 years to double

At 6%: 72 ÷ 6 = 12 years to double

Why starting early is everything:

Investor A: Invests $5,000/year from age 25–35 (10 years), stops. Total invested: $50,000

Investor B: Invests $5,000/year from age 35–65 (30 years). Total invested: $150,000

At 8% return, Investor A ends up with MORE at retirement — because of 10 extra years of compounding

Compound interest works against you too:

$5,000 credit card debt at 22% APR, minimum payments only → takes 15+ years to pay off, costs $10,000+ in interest

The most important financial decision: Start investing as early as possible, even small amounts. Time matters more than amount.

Reference:

Wikipedia: Compound Interest

https://en.wikipedia.org/wiki/Compound_interest