Compound Interest vs Simple Interest Examples
In the last post, we geeked out and learned how to calculate compound interest with contributions, which Is the most accurate and useful way of calculating compound interest because most of us will be contributing on intervals (i.e. once every month).
We calculated simple interest and compound interest and found that with all the variables being the same, simple interest gave us $8,250 and compound interest returned $132,777 for the same 50 years with interest rates being the same, etc.
Which strategy would you choose?
Of course, compound interest. If you have a strategy you can use, go with compound interest – always.
If you missed that post, Financial Literacy Lesson 4 – Compound Interest, check it out here.
The graph above shows the difference between compound vs. simple interest on $10K invested over 15 years at 9% interest rate.
Time Value of Money
The money you have now is MORE VALUABLE than the same amount in the future.
Why?
Because of its ability to EARN INTEREST.
Imagine you had $10,000 right now. 10 years from now if you had it in a savings or checkings account, it’s going to be $10,000! Because our savings account earns 0% interest.
If we took that money and invested it instead of leaving it in a savings account, then it has the ability to earn interest. That’s why it’s more valuable NOW than in the future.
The Game of Debt
Let’s Wonder About Debt
Do you ever wonder why banks want you to keep taking out loans?
Wonder why credit cards LOVE IT when you have a balance?
Wonder why the government taxes you right away, while taking forever to give you your tax refund…?
Why Banks Want You to Borrow
Let’s say you get a mortgage to buy a house at 8% interest (8 – 10%, the figure for this example doesn’t matter). For 30 years, you’ll be paying them that 8-10% interest rate. That’s why the banks love it because you have to pay the principle (the amount you borrowed) plus interest. They want you to borrow as much as you can and take as much time as you need to pay off that loan because they’ll be collecting interest.
Credit Cards and Credit Card Debt Negotiation
They’re strategy is the same as the banks except their rates are 15 – 24%. That’s why credit cards love it! As majority of Americans suck at using credit cards! As long as you have a balance, like having a mortgage, you’re going to be paying back that interest and as you’re paying it, you’ll be making them smile A LOT!
- If you are under a lot of credit card debt, we can help you reduce that debt through debt negotiation. Get my free book here to find out how that’s done.
Government Tax Scheme
Government taxes you right away because they know you’re irresponsible with money. People are irresponsible with money that’s why they get their cut from your paycheck while taking forever for you to get your tax refund.
You realize this right? The government gives you your tax refund once a year, between April and July and they take taxes from every single one of your paychecks. They use what they take out of YOUR paycheck to invest and earn interest themselves. Meanwhile, they take forever to give you your tax refund because they want to keep your money earning for them at 0% interest rate.
What a great scheme for the government, isn’t it?
Do You Want to Be the Loaner Or The Loanee?
You want to be a LOANER. Not a loner, but a LOANER! Hahaha, Ok, I’ll stop with the dad jokes.
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How to Grow Your Money Through Investments
- If you haven’t already started, start now! Money takes time to grow! This is the main action you need to take if you’re asking “How to grow your money through investments”
- Invest regularly because remember, money compounds!
- Be patient, there’s a reason why credit card companies give you time. INTEREST GROWS WITH TIME AND YOU WILL PROBABLY FORGET ABOUT THE DEBT BECAUSE IT’S TOO PAINFUL TO THINK ABOUT
Asking About “How to Grow Your Money Through Investments”?
If you’re asking “How to invest money to make more money” then be sure to subscribe to our newsletter, which we give you the education needed to make smart decisions. Not bets, but decisions. We’re not a get rich quick scheme (those are scams), we’re a long-term get rich scheme (people aren’t attract to this – but it’s the sure way).
Before you do all this though, make sure to get your credit card debt and all your other debts handled. Pay off as much of your credit card as possible and let’s get started on being a loaner through investing rather than being a loanee.
Alright that’s it for today, hope you got something from that! And as always, be sure to subscribe to our newsletter.