Investing 101: How to Grow Your Money with Compounding?

Credit: Pixabay

MJ Gonzales│

What will you do with your first initial business earnings? Buy new office equipment, enjoy much-deserved weekend getaway or compound it?  One the things that goal-oriented investors do  is to compound their earnings, which boosts their enterprises. Indeed, money management doesn’t stop with where you are going to put your hard-earned peso.

Compounding interest is perhaps an unpopular word for newbie or even for those already spending years in running business. But it is simply keeping or reinvesting your earnings to increase you business, and in the end produce more sales, profit or earnings. Does it really work that everyone should try?

Retirement and having time are just few more issues connected to compounding. This is because usually the amount involved in compounding is not that big at the beginning. It’s perhaps a little mark up you obtained from your enterprise, which you cannot be use for another project. While this somewhat true, you can still benefit from it especially if your start to keep on reinvesting early and treat this interest as perfect source of fund for your retirement.

“You make money from your money,” SME Toolkit Philippines, a program of the International Finance Corporation (IFC), shared. “Compounding of interest allows a principal amount to grow at a faster rate than simple interest, which is calculated as a percentage of only the principal amount.”

In the report of US News Today, they enumerated things people should know about the benefits of compounding like it can be a way to slowly establish your future.

Credit: Compounding
Credit: Compounding

“If you were to save $5 per month, you’d earn 5 percent interest compounded each month and with that continually for 10 years you’d have put $600 into savings. But the account would be worth $776. And, even if you didn’t add a single dime, it would be worth more than $1,500 in another 15 years,” ex financial advisor Gary Foreman shared on his article.

Another notable fact that US News Today mentioned was it’s actually the strategy being used by credit card companies.  When you settle for just “minimum payments,” the charge against you will accumulate more interest. What more if you don’t pay and face penalties? Thus, instead of allowing these companies to use compounding against you, you reverse the angle and use it to your own good.

“The principal works the same whether you invested $100 or $100 million. The millionaire may have more investment options, but even the poorest among us can use compound interest to reduce the amount that we pay credit-card companies and payday lenders,” Foreman added.

Compounding may not be the quickest way to grow your money. But it is one of the best strategies to practice while you have time to save and invest as like what Albert Einstein shared ‘The most powerful force in the universe is compound interest.”