Most of us know the brilliant scientist Albert Einstein, the man behind the Atom bomb who gave the equation E-mc2 but not aware that the same person has mentioned that compound interest (CI) is the eighth wonder of the world. As per him, the person who understands the CI will earn it and if he doesn’t understand, he will pay the same.
A person can be ahead of the game if he would like to take financial responsibilities, but if he is not ready, he needn’t worry. There will be plenty of time to get him ready for a successful future. And we’re there to show him the correct path.
Compound Interest is the Best Friend of a Crorepati:
People think Crorepati is a far-off dream. But in reality, it’s more realistic than anyone’s thinking. One can become a Crorepati with a little bit of planning, hard work, and using a money magic which is known as compound interest, which can be considered as a best friend to any Crorepati’.
As per personal finance expert Chris Hogan, money’s two best friends are time and compound interest with which it hangs out.
Let us explain to you with two friends Ram and Shyam. When Ram turned 30, he decided to start investing Rs 1000/month for 30 years. But his friend Shyam started a little late, at age 45 with Rs 2000/ month for 15 years, until he the age 60. Both have invested the same amount of Rs 360000/. So total returns should the same right? Let’s see the account balances of both at the age 60 in the below table:
| Column1 | Ram | Shyam |
|---|---|---|
| Age when started | 30 | 45 |
| Duration of investment in years | 30 | 15 |
| Monthly investment Rs | 1000 | 2000 |
| Total invested | 3,60,000 | 3,60,000 |
| Rate of return % | 8 | 8 |
| Interest earned in Rs | 11,42,517.5 | 3,34,534.37 |
| Wealth accumulated at age 60 in Rs | 15,02,517.50 | 6,94,534.37 |
| Multiples of actual investment | 4.17 | 1.93 |
Here both have invested the same amount but Ram has started early and earned more than double than Shyam due to the power of compounding! The greater the time you allow your amount to stay invested, the more the compound interest will work for you.
The viewpoint of Crorepatis: Investing is the primary tool for building wealth and achieving financial freedom. One has to start investing the earliest possible in his life; and see how the money magic i.e. compounding will work for him with time.
By Team Wealth ATM
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