The Magic of Compound Interest
Albert Einstein reportedly called compound interest the "eighth wonder of the world." For young women, understanding and harnessing this power early is one of the most significant advantages you can give your future self. It's how your money literally makes more money!
Key Concepts
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Simple Interest: Interest calculated only on the principal amount.
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Compound Interest: Interest calculated on the principal and on the accumulated interest from previous periods.
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Power of Time: The longer your money is invested, the more compound interest can work its magic.
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Frequency of Compounding: The more frequently interest is compounded (e.g., daily vs. annually), the faster your money grows.
How it Works (Example):
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You invest $1000 at 5% annual interest.
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Year 1: You earn $50 interest. Your total is $1050.
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Year 2 (Simple Interest): You'd earn another $50 on the original $1000. Total $1100.
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Year 2 (Compound Interest): You earn 5% on $1050 ($52.50). Your total is $1102.50. The difference seems small now, but over decades, it becomes enormous!