How compound interest can put you on the road to financial freedom

How compound interest can put you on the road to financial freedom

Compounding interest is known as the eighth wonder of the world. It’s a financial tool so powerful that master investors like Warren Buffett used it to build multibillion dollar fortunes.

What you don’t know is, you have the power to use compound interest in your hands right now!

Start saving today and build a fortune you can be proud of

How many young people do you know that are saving money right now? Every day in South Africa you see people spending on fancy threads and bling wheels. But how many of them will still enjoy that lavish lifestyle ten years from now? Is satisfying your immediate desires really the sign of true wealth? Not at all!

The only way you can become truly rich is to spend less than you earn and save money. Yes, that’s right, becoming rich is not about earning lots but saving lots. You see rich people go from riches to rags overnight and that’s because even though they earned a lot, they didn’t save any so when they stopped earning a lot, they had nothing to fall back on.

The sooner you start saving your income the better. If you start saving at 21, you’ll be in a much better position than someone who starts saving at the age of 31, 41 or 51... This is because you have the power of compounding interest on your side.

It’s truly astonishing how much money you can make through compounding. Here’s how it works…

If you have R100.00 saved up earning 5% interest each year. At the end of 12 months you'll have R105.00. Now that might not seem like much but watch what happens next...

At the end of your second year, you'll have R110.25. You earn R5.00 on the R100.00 you started off with. You earned 25 cents on the R5.00 in interest. This adds up over time. If you simply leave the money in that account for 10 years, you’ll have around R162.00 in the bank. That’s R62 extra for doing nothing. In 25 years, you’ll have R340.

Now, just imagine what your bank balance would look like if you added R500 of savings to that account every month. By the time you hit 30, you’ll be able to buy your next car cash – or a luxurious mansion for your retirement in 25 years.

The truth is, to take advantage of compound interest, you must start now. Time is something you can never get back. Nothing can stop you from growing your fortune, only your decision not to do it. As long as your investments are paying you a decent interest, you will never have to worry about money in the future again.

Where do you get compound interest from?

• You can start earning interest just by opening a bank account.
• You can also invest in your money to start benefiting from compound interest.

So, stop following the crowds as they chase instant gratification. Instead, practice patience and reap the rewards of being a savvy investor.