You need to know about compound interest

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Compound Interest is not a trick or magic but it can seem like it. If you are earning a low-income today and wondering how you will ever reach financial freedom, then read on, because compound interest is the answer.

The idea behind compound interest is incredibly simple but it can seem so complicated. Even hearing the words compound interest takes most of us back to when we were 15 years old and sitting in school trying to stay awake in math class. But please, give me your attention for two more minutes and I will explain it. 

The basic principle of the idea is that your money should work for you. If you are earning $60,000 a year and are able to save 10% you may feel like it will be an eternity before you could save say 1 million dollars. However, you are not factoring in compound interest. Experts in financial advice say that it is not how much money someone earns that makes them rich but by how much they save. If you save even a little bit of money it will start earning compound interest and you will be well on your way to financial freedom.

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If you can save that 6,000 in one year and it is earning a compound interest of 10% (In reality it will be less but let’s take 10% for this example). That means by the end of next year if you save no more money you will have saved $6,600. One year further and again saving no more money you will have saved $7,260. If you are also committing to saving $6,000 each year then the figure keeps going up and up. While these may seem like small differences early on. If you can let those savings work for you for twenty or fifty years by the time retirement comes around you will have saved hundreds of thousands of dollars more than you actually put into your account. 

Trust in compound interest. The key to start is to start saving straight away and to ensure you are receiving a competitive interest rate from your bank. Start talking about the benefits of compound interest with a financial advisor today.

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