Make more money, Compounding
Compounding is a pretty basic principle that can make you a lot of money over time. When you invest in something, you are making money from money, and compounding helps to speed up the process.
I will use a savings account scenario to explain it:
Let’s say you put $10,000 in a savings account that gives you 5 % interest per year. By the end of the year, you will have made an extra $500.
Now let’s say you leave the whole $10,500 in the bank without adding to or taking any of it out. If you leave it in the bank for another year, you will make $525. The $25 is the interest you make off of the previous years interest.
This can go on and on. If you leave it all in for another year, you will make $551 more for a grand total of $11,576. In three years you made $1,500 in interest plus an extra $76 because you left all the interest there. That’s very good.
This can work for savings accounts, money market funds, and dividend reinvestment programs. All it means is that you keep making interest off of your interest indefinitely as long as you keep reinvesting it.
Compounding interest may just give you those few extra dollars fro whatever your heart desires.
