The second concept which was shared to me is the power of compound interest. Albert Einstein referred to it as the 8th wonder of the world. He even formulated the Rule of 72 which states that '72 divided by the rate of interest (%) is equal to the number of years your money will double'. Because when we put our money, our savings, in an institution, we need to know when it will double. To illustrate:
In simple interest
Suppose you have 100 pesos and you put it in a bank which gives 1% interest per annum (p.a.), after 1 year, you will gain 1 peso ( which is 1% of 100). After 2 years, 2 pesos, after 3 years, 3 pesos, and so on....so when wll your money double in value? In 100 years of course! Tsk! Isn't that too long? Will we still be alive by then?
Now putting your 100 pesos with compound interest, applying the Rule of 72, we divide 72/1% and it gives us 72 years. See how wonderful it is? It's now 28 years less.
And of course, we will not settle for 1%. We know there are facilities which give much more than that, we just need to look.
No comments:
Post a Comment