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How’s it going today guys so this is a video that i am very excited about because it is so eye opening to people who have never played with a compound interest calculator before if you’re somebody who has you probably know where this story is going but i want you to promise me this if you have never played with a compound interest calculator in your life before
The very next thing i want you to do after this video after you subscribe if you’re new to my channel and drop a like the very next thing i want you to do is go down in the description and click the link for that compound interest calculator i’m gonna link it up and i want you guys to play around with it for 10 or 20 minutes just to see the amazing capability of
Compound interest in fact albert einstein called this the 8th wonder of the world because of its ability to make people freakin rich honestly so this video i’m going to be going over to compound interest interest examples as well as kind of explaining what it is there’s not a lot to it it is confusing but you know when you look at the formula this looks a little
Bit like i don’t understand that but when you play with the calculator it just makes sense so i’m hoping to really shed some light on this for you guys and encourage you guys to get started early with any kind of investing really time is on your side when you’re young and you’re gonna see going through this example is the huge difference between starting early
And starting late in the game so make sure you’re one of those people that gets started early even if it’s a small amount you got to start investing young to take advantage of the compound interest you need time to be on your side okay so first of all let’s define what it is so compound interest is basically interest calculated on the principle as well as the
Accumulated interest of the previous periods of the deposit basically that makes sense but the best way to explain it is earning interest on your interest so you earn interest on a certain investment then the interest you earned earns interest that’s as simple as it is guys maybe that formula looks confusing its interest on interest the longer amount of time you
Invest the more interest you earn and the more interest you earn on that interest compound interest yields significantly more than simple interest okay what are some examples of compound interest well let’s say you’re invested in the dividend stock and then you reinvest those dividends if people make the absolutely fatal mistake of not reinvesting those dividend
And they’re getting dividend checks every every quarter i feel bad for those people because they miss out on a ton they really do so if you’re somebody who’s investing in stocks and you’re getting those dividend checks in the mail call up your broker tell them you want to reinvest those things because you’re missing out on so much money you need to be reinvesting
Those dividends it’s it’s crucial to your financial success so that’s just one example there are compound interest and most uh you know mutual funds you’re involved with they’re automatically set up to reinvest those dividends that’s how they should be make sure that you’re doing this to take advantage of compound interest because if you’re just getting those
Checks in the mail for dividends you’re not going to be taking advantage of compound interest because you’re getting that interest basically paid to you as a cash payment instead of reinvesting it but anyway so the formula i’m not going to go into it because honestly i’m just not going to that’s just going to confuse things i’m not a math whiz but if you want to
Know where the actual compound interest formula comes from it’s this guy right here so the first example we’re gonna look at is somebody who invests $10,000 principle at a ten percent interest rate per year and this is how much they earn over a digit number of years okay so after one year they’ve earned ten percent on ten thousand or one thousand dollars so at
That point they have eleven thousand dollars after five years they have a little over sixteen thousand dollars ten years down the road they have just under twenty six thousand dollars so obviously when you first get started that’s nothing earth-shattering it’s decent returns but it’s nothing that’s like jumps out at you crazy you’re kind of like okay yeah you’re
Earning a little bit more than you would if you were just making simple interest on that but it’s when you get years down the road where the exponential curve just takes place in you just your jaw drops okay fifteen years later they are at forty one thousand seven hundred seventy two just under forty two thousand dollars twenty years later they’re at sixty seven
Thousand dollars 67 to 75 after twenty-five years you now have six figures you’re at just over one hundred eight thousand dollars on your ten thousand dollar investment after twenty-five years thirty years later you’re at just shy of $175,000 there’s a significant jump between twenty-five and thirty years right there as you can see so this is where things start
To get interesting guys okay after 35 years you’re just shy of three hundred thousand dollars on your $10,000 investment you’re at 280 1024 and 37 cents and after 45 years guys you have under just under five hundred thousand dollars you have just under half a million dollars at that point from your ten thousand dollar investment over forty five years as you can
See time is what you need for compound interest you need to give these things time at first the growth is slow it’s there but it’s slow but when you look at forty five years down the road its astronomical the difference between simple interest versus compound interest now the next example is a little more realistic for you guys because let’s be honest – as ten
Thousand dollars let’s say you’re let’s say you want to invest for forty five years you want to retire at set at 65 years old who has ten grand at twenty years old that’s not a very you know realistic situation so this one should be more realistic for you guys let’s say you had a hundred dollars a month that you invested that same ten percent interest rate until
You were 65 years of age now that’s a little more realistic a hundred dollars a month is twelve hundred dollars a year no matter what you’re doing you should be able to come up with a hundred dollars a month to invest alright that’s not an earth-shattering amount of money that could just be as simple as for invest in your tax return most people get a little over a
Thousand dollars from their tax return so let’s say you agree to invest your tax return every single year earning ten percent interest and some people may argue that ten percent interest is a little bit high but if you think that’s high go in that compound interest calculator change the figures around and you’re still going to see these kind of crazy results they
May not be as high as far as the dollar amount but the difference between the values based on time will be equally significant so let’s say you invested $100 a month starting at twenty years old you got your first job every single month you set aside one hundred bucks and you invest it if you start at twenty by the time you’re 65 years old you’re gonna have eight
Hundred sixty two thousand six hundred eighty-five dollars in eighty cents just under $900,000 you’re almost a millionaire if you start at twenty five so if you wait five years to do this okay you’re gonna have just over half a million dollars so right there the difference of waiting five years is a difference of over three hundred thousand dollars over three
Hundred thousand dollars you miss out on by waiting five years that’s pretty crazy guys now we look at starting at thirty years old now you’re looking at three hundred twenty five thousand two hundred twenty nine and twenty four cents still a lot of money guys but now we’re talking about a difference of over half a million dollars a difference of over $500,000
By waiting until you were thirty instead of starting when you were 20 investing just one hundred dollars every single month or twelve hundred dollars each year thirty-five years old you get started investing $100 a month until you’re 65 you’re gonna have just under two hundred thousand dollars that’s not i mean in the grand scheme of things looks like a lot of
Money but if you’re trying to retire that’s not a lot of money guys the figure that most people put on it is you’re gonna want like 20 times what you’re earning is the salary in your retirement to be able to retire some people say fifteen but people are living a lot longer now so they’re more realistic figure is you’re gonna want twenty times your salary in order
To retire and maintain the life that you have now and everything you’re enjoying in life now we’ll talk about 40 years old some from 40 to 65 you invest $100 a month at 10 percent interest you’re gonna have one hundred eighteen thousand dollars basically if you start at forty five years old you’re well under a hundred thousand you have sixty eight thousand seven
Hundred thirty dollars at that point and if you’re if you’re the poor soul that waits until they’re 50 years old then starts investing $100 a month for 15 years until they’re 65 at 10% interest they’re gonna have thirty eight thousand one hundred twenty-six and ninety-eight cents may be enough to buy a car certainly nowheres near enough to go retire off of you
Gotta invest early that’s the difference of having a million dollar retirement versus a forty thousand dollar retirement the difference of ten years is a difference of having a three hundred thousand dollar retirement versus a basically nine hundred thousand dollar retirement go play with these numbers guys jump on that compound interest calculator let’s say
You were ambitious and you invested two hundred a month three hundred five hundred a month let’s say you were going crazy look at how much it changes those numbers the last thing i want to take a look at i want to ask you guys a question i want you to answer this in the comments below three scenarios here i want you to guess who has the most money who has the
Middle amount of money who has the least amount of money so the person who invests 50 dollars every single month six hundred dollars a year okay from the age twenty to sixty five years old alright then we have somebody who invests five hundred dollars a month from the age 45 five to 65 and then we have somebody who invests $5,000 a month from the age of sixty
To sixty-five and this is still earning that same ten percent interest rate per year so go ahead and answer in the comments who do you think made the most money or who has the most money in their retirement who has the middle amount of money who has the least amount of money okay who has the most money you probably guessed it based on this initial figure here the
Person who invested $50 a month from age 20 to 65 has four hundred thirty one thousand three hundred forty two and ninety cents the person who invested ten times that amount from age 45 to 65 has three hundred forty-three thousand six hundred fifty dollars or the least amount of money of the three the person who invested ten times that figure or five thousand
Dollars a month from sixty to sixty-five has three hundred sixty six thousand three hundred six dollars now let me ask you this guy’s what seems more realistic as far as what you could do every single month could you sacrifice fifty bucks a month from age 20 to 65 pretty much everybody can i don’t know anybody who can’t all right unless you’re in really dire
Straits now could you really invest five hundred dollars a month from 45 to 65 you probably could if you were financially well often if you were good at balancing a budget but could anybody realistically save five thousand dollars a month from sixty to sixty-five i say absolutely not that’s that’s a crazy number but i just wanted to show you guys the difference
Of the time here that you need time to be on your side the last few pointers i want to make on compound interest are this think of compound interest as the time value of money the more time you give it the more it’s going to build you need time to be on your side that’s why you guys got to start young it’s it’s so important okay the growth with this is exponential
So if you go on that compound interest calculator it shows you the graph you’re gonna see that exponential curve we’re at first you’re not seeing much of a difference but after you give it a good number of years that curve just takes off and it’s just crazy what compound interest can do for you that’s why einstein calls it the eighth wonder of the world because
It’s just so amazing the last thing that i want to say is this compound interest can work for you or against you because you if you have compound debt all right if you have debt that’s earning debt you’re gonna see the same figure but working against you so if you’re somebody who’s paying off some kind of loan and you’re basically at that point you know paying
Interest on that debt and then interest on that interest for your debt it works the same way but backwards so just something else i know that’s probably kind of sounds kind of scary but really consider when you’re taking out loans that you may be basically paying interest on that interest on that loan so it can work for you or against you so make sure you’re one
Of those people who has compound interest working for you anyways guys that’s pretty much all i got for this video if you enjoyed it please drop a like if you guys have any other cool scenarios that you played around with on that compound interest calculator drop them in the comments if you are new to my channel please consider subscribing to be notified of any
Future uploads and as always i thank you guys for watching this video you
Transcribed from video
COMPOUND INTEREST 📈 How To Get Rich! (From $10K to $452K) By Ryan Scribner
