The 8th Wonder of the World: Compound Interest

by | Apr 7, 2016 | Personal Finance 101 | 0 comments

Compound interest is the eighth wonder of the world. He who understands it, earn it. He who doesn’t, pay it.

Albert Einstein

The Eighth Wonder of the World can help you with your retirement income. Investing your money now is the smartest decision you will make. How awesome is compound interest? Let’s take a look:

What is Compound Interest?

Compound interest is the interest that accrues from a certain amount of money, which in turn will accrue more interest over a certain period of time. In simple terms, you ‘park’ your money in one place, leave it there, and make money from your initial investment. All from the power of compounded interest.

How Powerful is Compound Interest?

Powerful enough for Einstein to consider it the eighth wonder of the world. For instance, let’s say you save $5,000 for the next 40 years (at 7% annual return). In 40 years, you will have $1.1 million accrued while investing $200,000 into the account over that same time period.

What About Taxes?

Because you are making money in the process, the IRS will come and take most of that money away, if you’re not careful. In one instance, a $1.85 million retirement account dwindled to only $188,000 because of taxes. The solution to this problem? Put your money in a tax-free Wealth Builder account. You pay the tax when you put money into the account, but once it’s in the account, that money is tax-free. Contact us if you need help with your savings.

What’s the Best Strategy for Gaining Compound Interest?

Be patient and save early. Saving today will give you more freedom in the future. Even though we live in a world where everything we want is at our fingertips, saving money takes time. Trust the process and believe in the power of compound interest, and your future self will thank you.