The Magic of Compound Interest

 

Are you ready to be amazed? Imagine making your money get a job and that job is to make more money. Sign me up, right? Watch the video below to learn more about how compound interest works.

 Investing is the key to being able to harness the magic of compound interest. Investing can seem intimidating but it does not have to be complicated to have a huge impact. In fact, I would recommend only using investment vehicles that you understand. A good financial advisor will help you to understand your options. You can open a free brokerage account through many of the major brokerage firms. Additionally, Bola Sokunbi, author of the blog, Clever Girl Investing has compiled a list of "28 Investment Terms You Should Know". Familiarize yourself with these terms so you can start building confidence and while you're there check out all the other free resources to learn even more. 

Look at your budget and decide what amount you can invest. Challenge yourself to find ways to invest as much as possible - it is never too late to start investing but compound interest needs time to create its magic. Help the magic along by investing as much as possible. Your future self will thank you.

Speaking of your future self, commit your future self to saving even more. In the book, Nudge by Thaler and Sunstein, the author state that, "Self-control restrictions are easier to adopt if they take place sometime in the future". Some work retirement plans have an option to commit your future self to investing more. If not you can still give yourself a nudge towards saving more by arranging an automatic debit from your checking account to your investment account to start at some future date. You could even attach the start date to some significant date like your next birthday. So, for example, at the start of your next birthday an additional $100 is taken from your checking account or directly from your paycheck and sent to your investments. Be on the lookout for ways to make investing more simple and automatic.

 Also, be sure to take advantage of your companies 401k match if it is offered! A 401(k) is a retirement savings account that you can contribute to with pre-tax funds. If you don't take advantage of an employer match, you're giving up free money. In fact, if you have this opportunity, it is likely best to funnel all your investment dollars to your 401k at least until you have maximized the employer match amount. 

Let's make some magic by putting as many dollars as possible to work making more dollars! Small sacrifices today can create financial security in the future. The time to begin is now.