How to get rich using the magic of compound interest

hi it's Patti her should marketplace so if you're looking for a surefire way to build wealth I've got one word for you compounding how to explain compounding I want you to meet two eleven-year-old sisters there's Amy and Stacy buy both Amy and Stacy are left $1,000 in aunt Hilda's will so they do the smart thing and they put that money in a bank account I fortunately they've got a father who's got a good eye for an investment and he's fine bank accounts the payout twenty percent in interest now Amy fancies herself as a bit of an active investor so she decides to take all of the interest that's thrown off out of that thousand dollars and put it into what she's calling a rainy day fund right so that's two hundred dollars a year into this fund Stacy on the other hand lazy Stacy decides I'm having far too much of a good time to be bothered with all of this money stuff I'm just going to forget about it so she forgets about it now ten years pass the girls come of age and of course it's time for them to spend their money so they want to see how much they've got amy has got a very nice two thousand dollars here in a rainy day fund add that to the thousand dollars that she has in principle and she's got a total of three thousand dollars which she's pretty happy about Stacy however has got to her surprise more than six thousand dollars in her account so how is it that lazy Stacy manages to make twice the amount that active Amy has made butts because Stacy didn't touch the money here in her account because remember every year this account throws off twenty percent in interest because you didn't touch it it just got added back into that a principle of mind so every year that principle of mine gets bigger every year it earns twenty percent in interest which gets put back into the main account again which gets bigger and bigger you could see this happening over ten years which is why she ended up with a very nice little sum there and that's the magic of compound interest okay and it's one of the reasons why it's a good idea sometimes just to put your money away sock it away and just forget about it it's also a reason why you should really never mess with a good thing otherwise it could leave you like poor we Amy here very badly needing a drink

Channel: paddy hirsch

Views: 21,105

Keywords: Compound Interest (Literature Subject), economy, personal finance, budget, wealth

Id: PGzcyxV2C5Y

Length: 2min 7sec (127 seconds)

Published: Mon Mar 31 2014