Have you ever made an impulse purchase that made you have buyer’s remorse as soon as you got home? Was it that you temporarily forgot about other things that needed to be paid first such as bills?
Was it that you should have purchased something else instead? Whichever answer fits your scenario, there is a simple way to avoid that guilt: save your money to reach a financial goal. Whether that goal is a necessity or a luxury, planning to save for it can make your life much easier. But if it was that easy, wouldn’t everyone do it? Truthfully, saving for a financial goal is difficult because many people don’t know where to begin.
In order to get the basics of saving for a financial goal, it’s important that we understand the term compound interest.
WHAT IS COMPOUND INTEREST?
When people think of interest, they often think of debt. But interest can work in your favor when you’re earning it on money you’ve saved and invested.
Compound interest can be defined as interest calculated on the initial principal and also on the accumulated interest of previous periods. Think of it as the cycle of earning “interest on interest” which can cause wealth to rapidly snowball. Compound Interest will make a deposit or loan grow at a faster rate than simple interest, which is interest calculated only on the principal amount.
Not only are you getting interest on your initial investment, but you are getting interest on top of interest! It’s because of this that your wealth can grow exponentially through compound interest, and why the idea of compounding returns is like putting your money to work for you.
WHY IT’S IMPORTANT TO SAVE NOW?
The magic ingredient that makes compound interest work best is time.
The simple fact is that WHEN you start saving outweighs how much you save.
An investment left untouched for a period of decades can add up to a large sum, even if you never invest another dime.