Compound Interest

Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”  He went on to say “Compound interest is the most powerful force in the universe” and “Compound interest is the greatest mathematical discovery of all time.”  Compound interest means that if I have $100 and earn 10% interest, I will earn $10 in interest.  But the following year I won’t just earn 10% on the $100, I will earn 10% on $110.  Every year the snowball picks up a little more snow and the interest earned, along with the total amount, grows larger.  Compound Interest in 30 years would be $1,744 as opposed to just $400 using simple interest.

Recently, we decided to make a change in our finances.  We learned a great deal from attending and later teaching Dave Ramsey’s Financial Peace classes.  Because our situation was so grim, we are still digging our way out; however our “peace” is much greater and our situation more secure.  The greatest gift of OUR transformation has been the change in our children. 

Our oldest financed his discovery tour to Taiwan last year and actually returned with more money than when he left.   This year, he moved there to begin teaching and left a large sum of money in the bank here and took plenty of cash to get started there.  How do you do that while in college?  Our oldest daughter bought her own $5000 vehicle with cash and recently let me know that she has a substantial wedding savings account started just after moving into her own apartment.  She is also working, attending nursing school and is on a strict budget.  Even our youngest is heading off to college with some money in the bank and her own car that she bought with cash.  

Most of what our offspring were taught is what they caught while they were watching us. They don’t hear what you say – they watch what you do.   That also may also be true of any undesirable qualities.  I often wonder how incredible our grandchildren will be based on what I see in them because I know about compound interest.  Then, in horror, I ponder the repercussions if we would not have changed.  Today, we can make changes that will affect our family tree and everyone we know.  Many of these decisions and actions have nothing to do with finances.  Our actions produce compound interest – let’s make sure they are good ones!

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