Do you have enough money saved for your children’s education? What about for your golden years?
There is still time to put your money to work and accomplish these and other financial goals in your life. And it’s simple. The key is to utilize the phenomenon of compound interest. Compound interest can help grow your money.
How Does Compound Interest Benefit Me?
Debt and interest. These two concepts often go hand in hand. But did you know that interest can also benefit you?
Compound interest is interest on your initial amount invested. It is also the interest on previous periods. Think of compound interest as interest earned on interest. You can now grow your wealth fast by earning interest on your interest already earned.
Compound interest will increase a deposit or loan at a faster rate than simple interest since it is based on the principal amount rather than just the base interest.
In addition, compound interest will increase a deposit or loan at a faster rate than simple interest, which is purely interest calculated on the principal amount.
Compound interest, on the other hand, refers to the interest earned on the initial amount invested PLUS the interest you make from that interest. It can make your wealth can grow faster.
Timing Is Key: Start Now
Time is your best friend and the one thing that makes compound interest so effective. Far more than how much you invest. Investments left to grow over many years can multiply handsomely. Starting that multiplication early is much more important than how much money you’re investing.
A little can go a very long way, and starting now will take you farther. Starting early will pay dividends in your future and help you accumulate extra money in the process. It pays to save sooner.
Investing Small To Compound Interest For Retirement
There is no reason not to take full advantage of compound interest. But how to get started?
To begin with, start accumulating wealth. Compound interest will get you where you want to be, so you’ve got to acquire some interest to compound off of. It is very possible to grow your money to a large amount by investing a small one. Retirement investments are one of the best options to do this. Saving consistently will set you on track to retire comfortably or send your kids to college stress-free.
Time is of the essence when growing your money. Start now and save whatever you can: small amounts between $25 to $100 can and will add up over a period of time.
Some Ways To Utilize Compound Interest
- Take advantage of your Roth IRA by maxing it out. (a Roth IRA is an individual retirement account (IRA) that, under United States law, is usually not taxed upon distribution, provided you meet certain conditions).
- You can make contributions to your employer-provided 401 (k). This is especially attractive if you can match your contributions.
- Self-employed individuals can contribute to a SEP-IRA account or similar. Contributions such as these are usually tax-deferred.
- Make contributions to a 529 plan if you are planning to save for education. Otherwise, maxing out a Coverdell Ira with a limit of $2,000 is an option. Limits vary from one state to the next.
Compound interest can be the difference between retiring well or barely scraping by. This applies to regular income earners. It also enables families to get great educations, should that be the goal. It could even become a deposit to put down on a home.
Maximize Gains With Peer-To-Peer Investing
Something else to be aware of is what we commonly refer to as peer-to-peer (or P2P) investing. It is a lending model that helps to link borrowers with investors. This is without involving banking institutions. Investors become lenders so they get higher returns than they would get from ordinary savings accounts. They also get higher returns from term deposits and other investments.
One of the biggest advantages of P2P investing is that investors can get higher returns over the stock market. Adding P2P investing to your compound interest strategy can be a solid option to pursue. It all comes down to your goals and the investment strategy you’d like to pursue.
Get Guidance You Can Trust Today!
Our team at Saddock Advisory is here to help you reach your financial goals. Make better investment decisions with the help of people you can trust. With client relationships lasting over 30 years, we have the expertise to help you invest wisely.
Schedule a meeting today and we can discuss the best options for you.