What compounding interest taught me about building wealth?

Growing up I had a rough idea of compounding interest. You basically earn interest on your previously earned interest and principal invested. But only when I calculated the amount did I realise compounding is so important because the effects can be astronomical.

You can either allow compounding interest to work for you in receiving interest on investments & funds, or you can let it work against you by incurring credit card interest and debt loan interest. A simple metaphor would be to think of it as rolling a snowball down a hill as opposed to rolling a snowball up a hill. You can either let it work in your favour or let it work against you.

Why It’s Important to Save now

The magic ingredient that makes compound interest work best is time.

An investment if left untouched for a period of decades can add up to a large sum, even if you never invest another single dime into it.

Let’s see how compound interest works with an example. Below, Monica, Joey and Chandler experience the same 7% annual investment return on their retirement funds. The only difference is when and how often they save:

• Monica invests $5,000 per year beginning at age 18. At age 28, she stops. She has invested for 10 years and $50,000…