Want to double your money or triple it? With compound interest you can! It’s the only way we know you can legitimately turn your R1 000 into R2 000, without doing a thing.
What is compound interest and how does it work?
Compound interest is simply earning interest on interest. For example, if you invest R1 000 at 5% and reinvest the interest, in 15 years you’ll double your money and have over R2 000! Here’s how it works:
How compound interest doubles your money
|Amount invested||Interest earned||Total amount at the end of the year|
|R1 000||5% on R1 000 = R50||R1 050|
Years 2 to 15
|Year||Amount invested at the start of the year||Interest earned for the year||Total amount at the end of the year|
|2||R1 050||5% on R1 050 = R52.20||R1 102.50|
|3||R1 102.50||5% on R1 102.50 = R55.13||R1 157.33|
|15||R1 979.44||5% on R1 979.44 = R98.97||R2 078.41|
Is it really that easy?
Yes. The advantages of compound interest are:
- You can grow your money, just by investing one amount
- You don’t need to find high-risk investments to earn good interest rates or investment returns
- You need to make sure that you invest your interest (don’t withdraw it and spend it)
- You must be patient and wait, because your money won’t double tomorrow, but it will double if you wait a few years
If 15 years feels like a long time to double your money, think on this: the 2010 World Cup was almost 12 years ago! Time can go by very quickly.
Make sure compound interest works for you
Compound interest is your friend, and you need to make sure it works for you so you and your family can create wealth. To get the best out of compound interest you need to do two things.
- Invest as early as possible
Start investing small amounts as soon as you can. If you invest your R1 000 at age 20, after 40 years – so, by age 60 –it will grow to R7 040. If you invest at age 35, by age 60 you will have R3 386. That’s less than half, even though you invested for 25 years.
If you’re not 20, don’t worry – Make the small step and just start today, because starting today is better than starting tomorrow or next year!
- Keep your money invested
We said it above, but it’s so important that we need to say it again – stay invested. Don’t withdraw your interest or returns – make sure they are automatically reinvested as soon as they are earned.
And why not invest more? Everything you invest and keep invested will benefit from compound interest!
Build your wealth with compound interest
Using the magic of compound interest is a great way to build wealth. It doesn’t require a lot to get you started, so why not look for a savings account or investment you can contribute to today? Leave the money invested and you can watch it grow! It could be the cornerstone of your family’s generational wealth plan.