WHAT IS COMPOUND INTEREST?

Compound interest is the type of interest that you are looking for when it comes to investing your money. This is the secret that every wealthy person out there knows how to do.

It's simple and easy to do. There is one thing, though, that you need to have in order for this to work. You need to have patience. If you can put money away and let it sit without touching it, compound interest will eventually do it's magic and make you a wealthy person.

If you teach your children this lesson from a very early age, you will give them the gift of creating wealth. They have time on their side, so even the smallest amount of money left alone can turn into a fortune!

Here is a really cool example of how this can work:

Think about the following question before answering...

"Would you rather take a penny that's going to double in value every day for a month, or a million dollars in cash right now?"

Which option would you take?

When someone first asked me this question, I immediately said that I would take the million dollars cash. To me, that was a no-brainer.

I was asked to take out my calculator and figure out how much money the penny would have turned into after 31 days.

I couldn't believe it! It came out to over 21 million dollars! (Try it with your kids, it's amazing!)

How did that happen?

One penny turns into two, then those two pennies turn into four, then those four pennies turn into eight...then those eight pennies turn into sixteen.... you get the picture.

All the pennies you get as interest, also earn interest. It just keeps compounding. That's why it's called compound interest.

The example of the penny is at a daily interest rate of 100%. It isn't likely you're going to get a bank or any other investment to perform this well for you, but it's a great way of showing how your money can make money.

We're going to go back briefly to our simple interest example of earning 3% interest on your money in the bank, and see how it can earn compound interest too.

As per the example, you will have $103.00 in your account after the first year.

At this point, you will start earning interest on the $3.00 as well as the $100.00.

$103.00 (your $100.00 + $3.00 interest from the first year) x .03 = $3.09

Add the $3.09 interest to your $103.00.
Your bank book will now show $106.09 for your second year.

I know this doesn't sound like a lot of money, but as the years go by, the amount of money you get on your original $100.00 will keep increasing.

Just think of what would happen if you added a small amount of money every month to your original $100.00. See what happens if you add a dollar a day.

This is exactly how fortunes are made!

It cannot be stressed enough... THE SOONER YOU START, THE WEALTHIER YOU'LL BECOME!