Knowing the power of compound interest will make you want to save all the money you can. It’s the beauty of paying yourself with free money as if you had a second job. It can add up fast and reward you with financial security and a nest egg to boot.
If you start putting away $200 a month today with a 6 percent yield you’ll end up having $32,775.87 with interest in 10 years. That may seem like a long time, but trust me… once you’re working in the real world 2019 will be here in no time.
If the power in the stock market does a little better over the next 10 years, and you end up with an 8 percent yield you’ll have $36,589.21. This is after contributing $24,000.00 (which seems like a lot, but it’s only $200 a month).
10 years later, let’s say you stop contributing to the fund and just let that 32k compound at 6 percent interest for another 10 years, and you’ll have $59,632.31. It almost doubles by letting the money work for you. If you can get an 8 percent yield, you’re looking at $72,750.64.
Let’s look at it from another perspective. If you simply put away $200 bucks a month for 20 years at 6 percent you’ll have $92,408.18 in 2029. The same time frame of 20 years at 8 percent yield and you’re looking at $117,804.08.
Once again, let’s say you save for 10 years and have that $32,775.87 saved up (and 6 percent yield is a very conservative figure)… you stop putting in $200 a month, let it sit for 20 years at 6 percent, and that 32k will be a healthy $108,494.83. Bump that up to 8 percent over the 20 years and you’ve got $161,480.25. That 2 percent difference over the source of 20 years ends up being more than $50,000.00!
Finally, imagine you’re able to put away that $200 per month for 30 years in a row. At 6 percent interest, you’ll be staring at $200,903.01 in your bank account. Don’t tell me that you’re not a little excited.
If you can get a powerful 8 percent annual return, then watch out…$298,071.89! You should now realize the importance of compound interest and how your money can work for you. Look at the difference between a 6 and 8 percent yield… almost $100,000.00 by the time you’re ready to retire.