Interest on your interest - money multiplying!
Imagine you have 2 rabbits. They have babies, now you have 4 rabbits! Those have babies = 8 rabbits!
Compound interest works the same way!
You earn interest on your money + interest on the interest you've already earned!
A = P(1 + r/n)^(nt)
A = Final Amount
P = Principal (starting money)
r = Annual interest rate
n = Times compounded per year
t = Time in years
Starting with $1,000 at 7% return:
📅 10 years: $2,000 (doubled!)
📅 20 years: $4,000 (quadrupled!)
📅 30 years: $7,600
Starting at age 25, investing $200/month at 7%:
At age 35 (10 years): $34,000 invested → $41,000
At age 45 (20 years): $68,000 invested → $121,000
At age 55 (30 years): $102, invested → $243,000
At age 65 (40 years): $136,000 invested → $487,000
Want to know how long it takes to double your money?
Divide 72 by your interest rate!
At 7% interest: 72 ÷ 7 = ~10 years to double
At 10% interest: 72 ÷ 10 = ~7 years to double
At 4% interest: 72 ÷ 4 = ~18 years to double
Inflation is like a slow leak in your money bucket.
If inflation is 3% and you only earn 2%, you're actually LOSING money!
That's why investing is important - you need to beat inflation!