Here’s an example of the power of compound interest.
Let’s say you put a fixed deposit of Rs.100,000 in a bank account which gives you 7% annual interest.
You absolutely do nothing else. You let it be in the bank account to accumulate with the interest year after year. In 10 years, you’d have Rs.200,000. You doubled your money because you let the money accumulate with interest. You doubled your money with just the compound interest.
You did absolutely nothing, but to put that 100,000 at the start. But this “you did absolutely nothing” is misleading. Here you are doing a very hard thing. A challenge that most of the people in this planet is not capable to do. The challenge is to “NOT touch that saving” for a long period of time. Our immediate impulse when we have some savings is to spend it on something we desire. We think “what is the point of saving when we cannot enjoy the present moment”. Lot of people give in to that, upgrading life frequently at the expense of building a safety net.
I used to be one, and that was painful.
Let’s say you are a good saver. Not only you put Rs. 100,000, but you put 10,000 each month for 10 years at 7% annual interest. You let the interest accumulate monthly. You would have Rs. 1,931,814 at the end of 10 years.
Let’s say you are a super saver. Not only you put Rs. 100,000, but you put 20,000 each month for 10 years at 7% annual interest. Let the interest accumulate monthly. You would have Rs. 3,662,662 at the end of 10 years.
You can check out scenarios from this calculator