Today’s infographic…focuses on explaining the power of compound interest – an idea that is absolutely essential to understand. Indeed, the power of compound interest is so compelling that it’s been often called the “eighth wonder of the world”.
What is Compound Interest? Simply put, it’s interest on interest. In the first compounding period, that interest is small – but in the long run, interest on interest is a big deal! Interest compounds depends on three variables:
- Interest Rate: The rate earned from savings or an investment
- Time: The length of time money is left to compound
- Taxes: The timing of taxation can make a big difference
Find out why this concept is so fundamental to personal finance in the following infographic:
The original article has been edited here for length (…) and clarity ([ ]) by munKNEE.com – A Site For Sore Eyes & Inquisitive Minds – to provide a fast & easy read.
Think you already know how to use and calculate compound interest? Check out this exercise created by Next Gen Personal Finance and see how you do. There are also many other free personal finance lessons available in the activities section of their website.
Related Article From the munKNEE Vault:
When should you start saving for retirement? Financial advisors say it is never too early to drop a chunk of your monthly paycheck into a retirement account – and ideally in your 20s when you start earning a steady paycheck. The compounding effect of money can be very powerful especially over a long period.
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