What Exactly Is Compound Interest?

Compound interest is the sum of a principal amount you may have plus the continuous interest rates you will be receiving from that investment.

compound interest exponentially

The example above is without any deposits except the initial one. You can also see the reinvested interest rates working on themselves. It went from $1000 to over $6000 in 10 years.

The interesting parts come when you decide to continuously deposit more money over a long period of time. It’s when all the magic starts to happen.

The more you invest, the more interest rates you will receive which will generate more interest rates. If you are persistent you’ll be able to see your wallet increase in an exponential way.

To show you a clearer example of how magical it can be, I’ll use this compound interest calculator.

compound interest calculator

I’m using my current data for you to see a real example of financial freedom which will be achieved in at least 10 years if I don’t lose myself. It may take less depending on salary raises or if I find other sources of income.

Basically, if I manage to invest at an interest rate of 12% the minimum amount of $10.000 per year during 10 years I will have $221,392 in total. This value means that I will be receiving approximately $26.550 per year. Divided by 12 months gives me around $2200 which is above the goal I set and a more than comfortable value to live in Portugal.

Obviously that I will want to keep growing my fortune, but at least by then, I will be able to live in freedom and spend time on things I truly enjoy and wish to learn.

How Can You Have Compound Interest?

You can benefit from the compound interest if you decide to reinvest the interest of a passive income source you may already have.

In case you’re not familiar with any type of investments yet, one of the ways I found to have money working for myself rather than the other way around was by investing in crowdlending platforms (as far as these platforms are regulated and licensed).

You can also opt to invest in the stock market or in Forex, etc. There is an unlimited world of possibilities. Simply make sure you get really good at one before going deep into it.

To understand the P2P or Crowdlending investments a bit better, take a look at my portfolio or read some of my reviews:

Keep in mind that there are also many people online using the same strategies that have already achieved financial freedom. If some people could, we all can.

Why Is Compound Interest So Important?

Even Albert Einstein understood the power of compound interest. Here’s what he said: “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.

It should be of extreme importance for anyone who wants to be able to live life to the fullest. If you can have money working for yourself, start to change your habits and make it happen. It only depends on your inner strength and will to become a better version of yourself. External factors are just a distraction.

Books

Read the list of books that are helping me have the right mindset by clicking here.


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