Learn how to pay off debt and invest in index funds
Signed in as:
filler@godaddy.com
Learn how to pay off debt and invest in index funds
Signed in as:
filler@godaddy.com
We naturally think in straight lines and linearity when it comes to our money.
We see our checking account balance grow with each deposit and fall with each expense.
Many of us see our retirement accounts the same way. We only count on our contributions to grow the account. However, depending on what the account is invested in, you won’t only see your balance fluctuate with contributions, you will also see it change with the market.
When compounding takes over your money, get ready. You are in for a ride.
Compounding happens when you start earning a return, not only on the money you invested, but also on the prior year’s returns. Look at this chart below.
This chart is an example of compounding versus linearity.
In both accounts you are contributing $500 a month or $6K a year.
If you’re depositing this into a checking account that makes no interest or putting it under your mattress, the orange line will be the result. At the end of 40 years, you would have $240K ($6K x 40 years).
If you took the same $500 every month and contributed it to an account that averaged an 8% return, then you would end up with almost $1.6M, eight times the amount of the orange line.
You can see the first few years don’t make much difference between putting the $500 under your mattress or into an investment account, but as time passes and compounding takes effect, the results speak for themselves.
The power of compounding is amazing.
Now, the question you should be asking yourself is, how do I take advantage of this in my life? That’s the right question.
How do you get in a position to make compounding work for you?
Cori Arnold was drowning in $260,000 debt just over 10 years ago, including $140,000 in student loans and $22,000 in credit cards.
After two major turning points, she figured it out. She paid off her debt in 5 years and became a millionaire in 10 years.
When you read Cori’s new book, Win with Your Money, you’ll learn the tricks to paying off debt and the strategies to building financial freedom.
You’ll also receive a free budgeting and net worth template to ignite your journey.
Saving doesn't create much of a return.
Without earning a return, you can't take advantage of compounding.
Investing creates a return for your money, which allows compounding to work.
Compounding is the magic that happens when you start earning a return, not only on your contributions, but also on your prior year returns.
If you invest $1,000 a year, and earn 10%.
In year 1, you would earn $100.
In year 2, you would earn $110 (not $100), because you earn 10% on $1,100.
Copyright © 2024 Win With Your Money - All Rights Reserved.
Powered by GoDaddy
We use cookies to analyze website traffic and optimize your website experience. By accepting our use of cookies, your data will be aggregated with all other user data.