The Principal of Compound Interest

“Those who don’t manage their money will always work for those who do.”  Legacy Journey

One of the most important concepts of money, is understanding the power of compounding. Once you understand compounding, you are on your way to making your money work for you.

Compounding is the concept of adding interest (or earnings) to the amount you started with so that both of them earn interest from that moment forward. Both parts (the original amount) and the interest continue to earn interest.

The best example I can think of  is which would you rather have – $100,000 today OR  one penny that doubles every day for the next 30 days?

Well, which one would you chose? Most people will say they’d take the $100,000. But, you would have 100 TIMES more if you chose a penny that doubles every day for 30 days!

After 10 days $10.24
After 20 days $10,485.76
After 25 days $335,544.32
After 27 days $1,342,177.28
After 30 days $10,737,418.24

Isn’t that incredible? A penny will grow to over $10 million in just 30 periods if it doubles (or grows 100%) each period. We will discuss saving for retirement in future lessons and how important it is to start saving at a young age. A little amount will grow to a very large amount over 30+ years by employing the concept of compounding

The “Why” of this Blog

Most people do not learn about money management in high school much less college. In raising children, I realized that I was the one who would help prepare my children for financial freedom. Thus, I have started writing this blog. This blog is written from the perspective of a Dad teaching his kids about money management.  It is for the teens/young adults to read and learn themselves. It is written in “bite size” and easy to follow posts….My goal is to explain the concepts of money management in weekly lessons that can be read on the go via your smart phone, ipad or computer.

My dream is that you become “wise” in your ways and avoid being the “fool” when it comes to your money.