1 way to SERIOUSLY GROW your money

Take a look at this:

You woke up this morning and decided, every month I want to save £100 each month in a savings account that pays 5% annual interest rate.

5 years later, You wake up and look at your account and your balance is £6,828.94

10 years later, ​as you continue to deposit your £100 and you check your account as it says, you have £15,592.93

30 years later, you check the account again and it says, you have £83,572.64 saved

What is happening here?

How patience pays you back. Imagine setting out to climb Mount Kilimanjaro over 6 days, pitching tents and making it to the summit without giving up!

“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”
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Albert Einstein

The 8th Wonder of the World

Albert Einstein called Compounding the 8th wonder of the world. Compounding is one of those mathematical concepts teachers taught me in school but it did not fully resonate until I began my financial education. Compounding allows you to keep growing your investments by continuously adding interests.  

In the example above, we assume an interest rate of 5% and that you invested the £100 in a savings account. In fact, you can choose to invest your £100 in the Stock market via a mutual fund and get double digit returns depending on market conditions which can exceed your overall returns. 
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Where can I apply compounding?
Compounding applies to asset classes where interests or dividends are paid. These can include:
- Savings & bond accounts
- Pensions
- Stocks & Funds
- Peer to Peer platforms

How to get the most of Compounding

In order to reap the full rewards of compound interest,  you have to do three key things: 
1. Start NOW
2. Continue to save or invest frequently
3. Do not take anything out 

Start NOW
The key secret of compounding is time. If I save or invest £100 for 20 years vs. 30 years at a rate of 5%, I will get £41,274.63 and £83,572.64 respectively. The difference  of 10 years allows me to double my investments.

The more time you allow for your investments to grow, the higher your returns. I always encourage my friends to start today even with a little bit in order to take advantage of this opportunity. 

Continue to save or invest frequently 
At what frequency should you save? Daily, Weekly, Monthly, Quarterly? The frequency of saving is something that you should consider in line with your financial goals. Personally, I like to save/invest the same amount or more monthly to benefit from interests and to keep promoting this financial habit. 

Do not take anything out 
​The mindset that I have employed is to have a long term view (25+ years) on my investments. I suggest you have a short, medium and long term view for your investments. This allows you to create contingencies in case anything arises. The goal here is to try and leave your medium to long term investments untouched. When I say untouched, I mean, not spending your principal and interest returns. You can always move your savings/investments from one bank account to another to gain the benefits of higher returns. 

If you invest in the stock market, your investments can increase via an appreciation of the stock value and/or via dividends. The same principles apply, reinvest your dividends to build momentum with compounding.


Keep in mind

In summary, let your principal grow and your interests returns will increase. This applies to all types of asset building engines that you choose to use. It is very important that you maintain a long term view on your savings/investment. Only save what you can make you sleep well at night. Maintaining a long term view on your investments allows you weather economic changes,  recession, booms, bust, over time research has found that these correct themselves. So try not to panic when for instance you find your stock investment has gone down from what you saw yesterday. This is part of the cycle of our economy. 


Want to play around with your figures to see the effects of compounding? Visit the calculator site

Let your principal grow and your interests returns will increase.