The 8th Wonder

Old time alarm clock with stacks of pennies to illustrate compound interest principles.

Have you ever seen the Grand Canyon? What about the Pyramids of Egypt? Or the Great Wall of China?  

These are often referred to as Wonders of the World, and you might have talked with your children about seeing some of these or other fantastic sites around the world. I would encourage you to consider using the time while they’re off from school to talk about where you as a family want to go before the children go off to college. If you don’t, time will slip by before you know it!

But there’s something more you should consider about world wonders.

Wealthy Baron Rothschild was once asked if he had seen the Seven Wonders of the World. He responded, “No, but I do know the advantages of the eighth wonder of the world—compound interest.” 

And Albert Einstein went so far to say that the greatest mathematical discovery of all time wasn’t E=MC2  – it was compounding.

Who do you think would end up with more by age 65? A 21-year-old who started saving $1,000 a year for only the next eight years, or a 29-year-old who saved $1,000 a year for the next 37 years? 

Is it the 21-year-old who saved a total of $8,000? Or is it the 29-year-old who saved $37,000? Surprisingly, the person who saved only $8,000 accumulated more. Because he started earlier, he ended up with $64,000 more.

Understanding compounding is important. There are three variables to it: the length of time you save, the amount you save, and the percentage rate you earn while you save. 

  • We’ve already seen that the earlier you start the better.
  • As for the second variable, the amount you can save, to save $1,000 a year means you need to save an average of $2.74 a day. The key is to save consistently. 
  • As for the third variable, the rate of return you earn, if you invest $1,000 a year for 40 years and earn 6%, you’ll end up with $164,000. If you earn 8%, you’ll have $280,000!

 

You don’t have to be a world traveler to see some of the Wonders of the World. Compounding is the one Wonder you can see from wherever you are!

But don’t keep this a secret from your children. Get a few minutes with them tonight and review some of our free, short and easy to understand videos on topics like this by clicking here.

In Christ,

Howard Dayton

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