Understanding compound interest can be the difference between living on the streets and owning a nice home.
Teaching children how compost interests work and how to make it work for them, rather than against them, can make a big difference in their lives.
We adults, too!
I have spent too many years on the wrong side of compound interest. Years when expenses exceeded income and debt grew.
Whether you are building your business or living a lifestyle, credit purchases can be very costly.
Our mission is to create financial freedom for individuals and families through weekly investing and the power of compound interest. Let’s Have Fun!
Good Uses of Credit
There are times when debt is appropriate, such as a long-term mortgage at a low interest rate for a home. Or a line of credit for business expenses. Here I am looking at the consequences of irresponsible or survival credit use.
I will run through some compound interest scenarios for you to consider.
Also, a way out of debt using the power of compound interest.
The Cost of a $10,000 Purchase on Credit at 10%
The calculations used are from The Calculator Site. Please play around to verify my numbers and try your own.
In this scenario, you have bought something for $10,000 at an annual interest rate of 10%. The interest is added to your balance each month, so the next month’s interest is calculated on the larger balance.
The interest cost over five years is $6,453.09.
That means your total debt for the purchase is $16,453.09.
If you can’t pay it off, it will get much worse!
If you are paying 18% on a consumer credit card, your debt would be $24,432.20 after five years.
Yikes!
The Gains of a $10,000 Investment Earning 10%
In this case, your $10,000 investment earns 10% per year, with the interest calculated and added to your balance each month.
Your investment earns $6,453.09 over 5 years, bringing the balance to $16,453.09.
Much better than PAYING $6,453.03 interest! Right?
The Power of Weekly Investments Earning Interest at 10%
One of the powers of programs such as Educational Savings Funds for your children is that small, regular contributions compounded over time can provide funding for education and other uses.
I recently wrote an article about how investing $30 a week, a weekly coffee budget, can grow to a meaningful number
Adding $30 a week to a plan that compounds the interest monthly at 10% annual interest grows like this:
After 5 Years, you have saved $7,830.00 and earned $2,286.18 in interest for a total of $10,116.18.
Did you know you were spending that much on coffee or another habit?
After 10 Years, you have saved $15,630.00 and earned $11,081.06 interest for a total of $26,711.06.
After 20 Years, you have saved $31,230.00 and earned $67,707.79 interest for a total of $98,937.79.
You have more than tripled your money!
What Does 3% a Week Look Like for You?
There are many ways for investors to earn 3% a week, including businesses such as services, storage rentals, vehicle rentals, gas stations, restaurants, bars, house restoration and flips, and more.
There are also substantial risks and investment of time and money in many of these businesses.
I am in the 6th week of investing in an AI auto-trading system that has returned and compounded more than 3% every week so far.
Here is what it looks like investing the $30 ‘coffee’ money each week over time.
In the first year, you invested $1,590.00 and earned $2,197.78 in interest for a total of $3,787.78
You have already more than doubled your investment!
In the second year, you have invested $3,150.00 and earned $18,114.78 in interest for a total of $21,264.78.
At the end of the third year, you have invested $4,710.00 and earned $97,838.30 in interest for a total of $102,548.30.
That is more than the median household income in North America!
In the fourth year, you have invested $6,270.00 and earned $474,318.69 in interest for a total of $480,588.69.
That is a nice house in most North American cities.
At the end of the fifth year, you have invested $7,830.00 and earned $2,230,981.39 in interest for a total of $2,238,811.39.
That is a house in expensive cities like Vancouver or San Francisco.
Or many other options for your family.
Not too shabby for investing your $30 coffee budget each week.
Please use The Calculator Site or your favourite financial calculator to verify these numbers.
You can also play with what the numbers look like over more years. Or if you invest more each week or start with a bigger number.
For example, try calculating what a one-time $1,000 investment will grow to in 5 years without adding any more funds.
Starting with $10,000 is very interesting!
A Path to Getting Out of Debt?
Even if you are struggling to overcome crippling debt, putting the equivalent of your weekly ‘coffee’ budget into this investment can eventually pay off your debts and lead to financial freedom for you and your loved ones.
Worth a look?
This auto-trading platform has been working for me for many weeks. I broadcast my results weekly and would be glad to show you what I am doing and help you get started.
Greg Dixon
Chief Trader and Investor