Financial Independence, Life, Saving Money

Compound Interest: The Real Santa Claus

Do you remember what it was like to be a child on Christmas eve?

My brothers and I would usually lock ourselves in one room, trying to stay awake all night playing games and excitedly predicting what Santa might bring us. I have such fond memories of the way we bonded on those nights and the feelings that it elicited.

“Is Santa real? Will he bring me something this year? How does he get down the chimney? Is he going to know that I swiped a cookie from his plate before going to brush my teeth?”

I can also vividly remember that as I grew older, I began to feel confusion over the whole concept of getting something without working for it. Even back then, I understood that you don’t just have free things fall in your lap. In “Real Life” you can’t just fall asleep and wake up with something that you didn’t have the night before. That’s not how the real world works.

Except ….

That’s exactly how the real world CAN work.

It’s all part of the magic of the real Santa Claus – more accurately known as compound interest.

Compound interest is a wonderful, magical, and most importantly, real way to get something without actually working for it.

It is the phenomenon that takes place when you invest money, your money produces interest, that interest is added to your original money, and then that larger pool of money produces more interest, and the cycle just continues.

That’s about as confusing as figuring out how someone can sneak into your house through a chimney every year, so let’s break it down a little more with an extremely simplified scenario for illustrative purposes.

Say you make a single $1,000 investment at the beginning of the year and you receive 10% interest on that money per year. You’d end the first year with $1,100.

You then keep the $1,100 dollars invested, and you earn 10% on that investment. You’d then finish the second year with $110 dollars in interest, and your total investment would be up to $1,121.

As the interest compounds, you literally make money while you sleep!

 

 

As you can see, you started with a single $1,000 investment, and at the end of 10 years that money has grown to $2,593! You did absolutely nothing, but after a period of time you end up with more than double the money that you had before!

Let’s say you wanted to make a larger investment. Maybe $5,000.  The result?

 

 

Again, we see the magic of this phenomenon. $5,000 turns into almost $13,000 without you doing anything!

It’s almost like waking up to find a bunch of Christmas presents under the tree!

There’s only one major caveat.

Santa Claus  (Compound Interest) won’t bring you presents (or investment gains) if you aren’t a good boy or girl (if you don’t invest) that year.

You have to make sure that you spend wisely enough throughout the year in order to save money and be able to invest and reap the benefits of compound interest.

Get started today and let the real Santa Claus start working hard for you! Who knows what you might wake up to “under the tree” a few years down the road!

 

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