Embrace the power of compounding interest from "summary" of I Will Teach You to Be Rich, Second Edition by Ramit Sethi
The power of compounding interest is one of the most important concepts you need to understand when it comes to building wealth. Essentially, compounding interest is interest that is earned on both the initial amount of money you invest and on the interest that money has already earned. In other words, your money starts making money on its own, creating a snowball effect that can grow your wealth exponentially over time.
For example, let's say you invest $1,000 in an account that earns 5% interest per year. After the first year, you would have $1,050. In the second year, you would earn 5% interest on $1,050, not just on the initial $1,000. This means you would earn $52.50 in interest in the second year, bringing your total to $1,102.50. Over time, this compounding effect can lead to significant growth in your investment.
The key to taking advantage of compoundi...
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