View Single Post
Old 01-27-2004, 08:47 PM   #7 (permalink)
Randerolf
Fireball
 
Randerolf's Avatar
 
Location: ~
I decided on this one. i report is tomorow. It's a great thing to utalize.

http://www.ivillage.com/money/life_s..._33145,00.html

Quote:
The Power of Compound Interest
by Stacy Kravetz

Compounding is what happens when your interest earns interest, resulting in a snowball effect.

For example, if you start out with $100 and you compound annually at 10 percent, you'll have $110 by the end of the year. The second year you add $100 to the account and still earn 10 percent, but you earn it on $210, giving you $231 at the end of the year -- doubling the interest you earned in the first year. It doesn't seem like much at first, but over the long haul all that interest adds up.

Interest can be compounded annually, monthly or even daily, meaning you earn interest on whatever amount you have at the end of that period. Daily compounding gives you more money than annual compounding because your principal -- the amount that earns you interest -- increases every day rather than only once a year. The more frequently your interest is compounded, the more it will grow.

Compounding has more power the earlier you start investing. The following example will show you how.

The Power of Compounding

Say you invest $2,000 a year for 10 years from the time you're 22 until you're 32. Then you stop investing and let the money compound at 10 percent for 28 years until you're 59 1/2, which, depending on the type of account, may be the first time you can remove it without penalty. You'll have $505,629 after contributing a total of $20,000 and letting it compound.

On the other hand, if you wait until you're 32 to begin investing and you put away $2,000 a year for 28 years until you're 59 1/2, you'll only have $295,262, even though you'll have contributed a total of $56,000. Since money compounds more the longer you leave it in your account, it makes sense to start as early as you can.

A great strategy for growing your savings is to commit to investing a certain amount per month. If you can invest $100 a month, for example, and commit to increasing your monthly investment by the rate of inflation each year (so if the inflation rate is 4 percent invest $100 a month the first year, $104 a month the second year, $108 the third year), your savings will add up quickly.

Think of the $100 payment -- or whatever amount you can afford -- as a monthly expense like your phone or electric bill. Put the payment into a money market account each month when you're paying your bills. If you invest $100 a month for five years and increase the monthly contribution by 10 percent a year, you'll have $9,278 assuming a 10 percent rate of return.

Five Steps to Making Your Money Grow

Start investing as early as you can

Get the highest interest rate, or rate of return, you can find

Don't take the money out of retirement accounts because you'll be charged a penalty

Try to make the maximum allowable contribution every year, even if it's not tax-deductible

Leave your money in the account as long as you can after you've hit age 59 1/2; your money will compound more the longer you let it sit
Randerolf is offline  
 

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 357 358 359 360