Albert Einstein reportedly called compound interest the eighth wonder of the world. Understanding it early can make a life-changing difference in wealth.
Simple interest: I = P×r×t (only on principal). Compound interest: interest earns interest. After t years: A = P(1 + r/n)^(nt), where n = compounding periods per year.
Invest $1,000 at 7%/year: after 10 years = $1,967; after 30 years = $7,612; after 40 years = $14,974. Starting 10 years earlier nearly doubles your outcome.
Before investing, build 3–6 months of expenses in a high-yield savings account (HYSA). This prevents you from going into debt when unexpected expenses hit.
To estimate how long to double your money: 72 ÷ interest rate = years to double. At 6%: 72÷6=12 years. At 9%: 72÷9=8 years.
Q1: Compound interest differs from simple interest because:
Q2: The Rule of 72 says money doubles in how many years at 8%?
Q3: What should you build BEFORE investing in the stock market?