Financial Education - Using Compound Interest

To have a compounding investment, you need only ensure that the interest you receive is re-invested into the principal investment. So for example, if you invest a thousand dollars at 5 percent interest, at the end of the first year you will still have your one thousand dollar principal, plus $50 dollars interest earned, for a total investment of one thousand and fifty dollars.

By re-investing each of your interest income returns back into your original investment, in other words allowing it to accumulate or compound, you produce a very powerful effect over time.

The average working life is 40yrs. If a young person twenty years of age decides to invest just one hundred dollars each month until age 60, they would invest a total of $48,000 (($100 x 12mths) x 40yrs). However… if they had it invested at 10% return and allowed their interest income to accumulate within their investment fund, they would end up with a nest-egg over ten times the size of their total investment amount and would reap a payout of over $584,000 by the time they reach age 60!

The period of time that your investment has to accumulate, and the interest rate at which it is earning income, are critical factors in the multiplication process. Further, if you use leverage by investing in real estate, you can really magnify your returns over time.

Typically, one can purchase residential real estate for a 20% down payment. If you follow Hans Jakobi's teachings, you can even do it for no money down. But assuming 20% down, if you invest forty thousand dollars to purchase a $200K house, when that property appreciates 5% it will be worth $210K. That $10K is a 25% return on your forty thousand dollars invested. Once the property is worth $300K and it increases another 5%, it will be worth $315K. You will then have generated a 37.5% return that year on your original forty thousand dollars invested.

It is definitely worthwhile getting educated about financial matters because if you apply sound knowledge to your investments, you can dramatically alter your lifestyle and retire years earlier.

One excellent source of financial education is Success University. Their curriculum includes dedicated sections for both finance and real estate from world experts such as Andy Fuehl, Dr. Micheal Teng, and William Bronchick amongst many others. You can check out the Success University curriculum by accessing their $2 fourteen Day Trial membership via the corner peel away ad in the top right hand corner of the page I linked to in the above paragraph.