Most people equate interest with debt. They know that they have an interest rate that they agree to pay in order to have access to money – whether on a loan or a credit card. But interest isn’t just something they pay, it is also something they can earn. Interest, especially compound interest, is a remarkable way to build wealth.
There are many ways to make money with money. It can be invested long or short term in many ways, each of which has the potential to make a little or a lot of money through interest. Here’s how:
Depending on where you place your money and the interest rate it earns, your initial investment or principle will generate a return. This return can be added to the initial investment and the cycle begins again – only this time, the interest is generated on the principal plus the additional money earned through interest. Doing this over and over creates a compounding effect that creates wealth passively. Combined with other wealth strategies, this is a powerful way to build wealth and experience the freedoms and choices that wealth brings.
Here are some typical and not-so-typical ways you can use compound interest to create wealth:
Start a savings account at an early age- A lot of families begin an account for a child at birth. The power of compound interest gets rolling at a very young age. Starting sooner than later means you can save smaller amounts that ultimately turn into big numbers. Even a small deposit like $100.00 per month can create a millionaire outcome by the time your youngster is 50 years old.
Get a retirement account-“Go to college and get a good job” was the mantra of the masses for many years. Why? Retirement income. Some employers offer excellent retirement programs. Many even pay a contribution each month and the money can be saved before paying taxes. This money is working right alongside you throughout your career, building compound interest and making you wealthy. In some cases, you can keep these accounts growing even if you leave that employment.
Play the market- You don’t have to be a Wall Street know-it-all to maximize interest. There are plenty of ways to invest and save with or without a lot of risks. Check into local businesses that offer financial planning advice and find someone who shares your philosophies and speaks to you in ways you can understand. Having a financial planner in your life should feel as easy as having a trusted friend. They can help you find the right amount of risk and interest to help you reach your goals.
Compound interest is a remarkable tool for building wealth. Using interest-bearing accounts alongside other wealth-building activities can create wealth and give you the choices that you want.
