The Power of Compound Interest: Building Wealth Over Time

Compound interest is often called the "eighth wonder of the world" (attributed to Einstein) because of its ability to grow wealth exponentially over time. Unlike simple interest, which only earns returns on the principal, compound interest earns returns on both the principal and accumulated interest.

How It Works:

Example: If you invest $10,000 at a 7% annual return, in 10 years, it grows to ~$19,672. In 30 years? ~$76,123—without adding another dollar.

The Rule of 72: Divide 72 by your annual return rate to estimate how long it takes your money to double (e.g., 7% return ≈ 10.3 years).

Why It Matters:

Start Early: A 25-year-old investing $300/month at 7% will have ~$1.1M by 65. Waiting until 35 reduces the total to ~$500K.

Debt Works Against You: Credit card debt compounds too—owing $5,000 at 20% APR grows to ~$9,000 in 4 years if unpaid.

Action Steps:

Invest in low-cost index funds (e.g., S&P 500).

Maximize tax-advantaged accounts (401(k), Roth IRA).

Avoid high-interest debt.

Small, consistent investments today can lead to financial freedom later.