Magic of Compounding

Sep 08, 2020 | Brendon Boothman


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Have you ever heard of the power of compounding?  Or did your parents ever tell you to start saving early and not to wait?  If you want to know what that even means or why you’ve been told to pay yourself first read on. 

Compounding is a magical thing.  Most people, if they started saving early enough, may watch their savings compound over 1 or 2 decades. but very few will benefit from 4 to 5 decades of compounding. Let’s take a look at why your parents told you to start saving early:

 

As you can see, with a regular monthly investment of $1000 you will have $170,324 in 10 years but in 30 years it grows to over $1,000,000 at a 5% return.  Now if we were to compare a rate of return of 5% vs. 7.5%, you would have over $150,000 more after 20 years of compounding utilizing the higher rate of return. Again the sooner you being to save more substantial benefit you will realize from compounding.

Pay yourself first!