Quick snippets from my morning read on Friday, 20th November 2020
Today’s morning read still follows this week’s theme on money and finances. This read was inspired by the concept of compounded Investment as talked about in this week’s newsletter. The read is taken from a Forbes article by Kate Ashford.
What is compound Interest?
Compound interest is when the interest you earn on a balance in a savings or investing account is reinvested, earning you more interest. It accelerates the growth of your savings and investments over time. Conversely, it also expands the debt balances you owe over time.
Successful compounding lets you use less of your own money to reach your goals. Here’s everything you need to know about what Albert Einstein allegedly called the eighth wonder of the world.
Making Compound Interest Work for You
Give yourself time.
With compound interest, the power of time is everything. The sooner you start saving or investing, the longer you give that money to grow. This is why it’s important to start investing for retirement as soon as possible. The earlier you start, the less of your own money you have to save. The bulk of your retirement funds can be grown through compounding.
Pay down debt aggressively.
Compound interest works against you when you borrow money, whether that’s via student loans, credit cards or other forms of borrowing. The faster you can pay those down, the less you’ll owe over time.
Compare APYs.
The annual percentage yield, or APY, will give you a better idea of what you’ll earn or be charged in interest than the annual percentage rate, or APR. That’s because the APY accounts for compounding, while the APR is the simple interest rate.
Check the rate of compounding.
The more frequently an account compounds interest, the more you’ll earn. (Or the more you’ll owe.) Ideally, you want your savings products to compound as frequently as possible and your debts to compound as infrequently as they can.
You can read the full article to get a broader understanding of Compound Interest.
And as always, if you enjoyed this, check out the rest of our daily snippets, curated daily, right here on The Red Notebook.
