Compound Interest The 8th Wonder

COMPOUND INTEREST — THE 8TH WONDER (OR YOUR WORST ENEMY) "He who understands it, earns it. He who doesn't, pays it." THE ENGINE Money makes money. That new money ALSO makes money. your $$$ interest ...added back in -> bigger base -> bigger interest THE HOCKEY STICK ($10k at 8%) $ yrs 10yr ~$22k 20yr ~$47k 40yr ~$217k you only put in $10k... the other $207k is what 40 years of waiting paid. RULE OF 72 (mental math) 72 / rate = years to DOUBLE 8% -> 72/8 = 9 yrs to 2x 12% -> 72/12 = 6 yrs to 2x 3% -> 72/3 = 24 yrs (savings acct = slow) THE EARLY-BIRD SHOCK ANITA saves $2k/yr from age 25-35, then STOPS. (put in $20k) BOB saves $2k/yr from age 35-65, never stops. (put in $60k) At 65: ANITA ~ $315k > BOB ~ $245k She saved 1/3 as much — and won. A 10-yr head start beats saving MORE. THE DARK SIDE — it runs in REVERSE Credit-card debt compounds AGAINST you at ~22%. 22% APR, compounded monthly = 24.4% real -> debt DOUBLES in 3.2 yrs Pay the minimum and the same math that builds millionaires quietly buries you. Same engine. Whose side it's on = who owns the money. THE ONE MOVE TIME > amount. Start at 25, not 35. The first decade looks flat — it isn't. Every decade multiplies by the same 2.16x; only the axis lies. ...the last decade does almost everything (the blast). Most people quit before the curve pays off. Don't. JARGON, DECODED Principal = the money you put in. Interest = what it earns. COMPOUND = interest earns interest too. Simple interest = only the principal earns (a straight line). Compound = the curve (a hockey stick). Rule of 72 = quick doubling-time = 72 / annual-% . Works for growth AND debt.