Multiply your savings - Making your savings work for you is one important move to creating massive wealth in the long run. Return on investment or ( ROI ) is the money that flows back to you as a result of an investment. Reinvesting on you return on investment through the power of compound interest is definitely one good way to accelerate your personal wealth.
The two important terms to know when investing is simple and compound interest.
Simple interest is the return that your cash investment generates. It can be calculated by first multiplying your investment by the annual interest rate. This gives you the amount of interest that you will receive each year. If your investment is for less than a year you then need to multiply your annual interest by the number of days of the investment period divided by 365. ( pro-rate )
e.g. A $2,000 investment at 10% per annum would yield a $200 return at the end of the year. However, if your investment is less than a year, say 200 days. Then you would take the $200 interest multiple by 200day / 365 days ( per year ) which is $109.
At this point, you can alway choose to withdraw the interest and spend it. On the other hand you can choose to reinvest it and let your money snowball.
With compound interest, the calculation gets a little more complicated but the return is also more interesting. Instead of just returning you a flat rate over the year. Your interest per month is added to the sum and the same interest rate is now base on a bigger sum. Just like the snowball effect.
Understanding the difference between simple and compound interest will help you make a better decision in your investment. Look at the figures in your account and understand how it’s being calculated. Find a better deal if possible. The initial difference may not be very substantial in the beginning. But do your math and you will see the difference it makes over the next decade or two.
Blessings,
Popularity: 78% [?]
My Squidoo Page
