29 Apr Power of Compounding interest for more money controlling saving investing increasing making & earning tips ideas tricks ways quotes
Saving & investing money in early stage for long period play important role for getting benefit of compounding interest. Compounding interest is said eighth wonder of world which provides sound financial backup & security for future.
In above mentioned Graph, it can be easily understood about a person’s saving-cum-investing habit in two cases.
In first case, when a person save and invest money from his starting earning since age of 25 year. This person save-invest money for 10 years, from 25 year to till 34 years. This person annually invests $ 1000 for 10 years mean total investment of $ 10,000 in 10 years (from 25 to 34 year). Then stop investment from 35 years to till 64 years but keep invested that $10,000 till reaching 64 year age. In the end of 65 year age, invested amount of $10,000 become $1,57,435.
If this person start investing $ 1000 annually at the age of 35 year and keep continue to investment till 64 year age (mean invest money for 30 years which is total $30,000). In the end of 65 year age invested amount of $30,000 become $1,22,346.
In above diagram, in both example interest rate is same 8% annually. But earlier low invested money ($10,000) become more ($1,57,435).
While in second case, later more invested money ($30,000) do not comparatively become more ($1,22,346)
Whole thing is of compounding interest benefit on early invested low money
Likewise, in another same above mentioned example, there are two friends first is Suresh while second is Ramesh. Both friends start earning in the starting of their 25 years of age.
If for long term period, there is average 12% annual interest rate return in mutual fund investment.
Suresh start saving & investing Rs 5,000/- per month in mutual funds. Suresh invest from first January month of year 2005 (suppose he is of 25 year old in this 2005 year when he get his first earning). Suresh invest Rs. 5,000 every month in mutual fund till December 2011 (last month of 7th year). Mean for 7 years (84 months) total invested money is Rs. 4,20,000/-. Suresh stop continue investment from January 2012 (first month of 8th year) but keep his till now invested money of Rs. 4,20,000/- in mutual fund investment till 31st December 2039. For these 28 years from 1st Jan 2012 to 31st Dec 2039, Suresh do not invest any extra money in those mutual fund investments. In year 2040 (Also his 60th year age) his earlier invested money of Rs. 4,20,000/- become Rs. 1.52 crore.
On the contrary his friend Ramesh start investing Rs. 5,000/- in mutual fund from January 2012 (first month of his 32 year of age) to December 2039 (till last month of his 59th year of age and also last month of his 28th year investment in mutual fund). For total 28 years (336 months) investment in mutual fund, total investing money is Rs. 16,80,000/-. In year 2040 (Also his 60th year age) his total investment of Rs. 16,80,000/- become comparatively low of Rs. 1.20 crore.
In above mentioned example it is again clear that early invested low money (Rs. 4,20,000/-) grow comparatively more (Rs. 1.52 crore) than later invested more money (Rs. 16,80,000/-) which grow comparatively low (Rs. 1.20 crore).
Reason behind this is power of compounding interest which levy on early investment for more duration period
Thus Power of compounding interest play very important role for money controlling saving investing increasing making earning.
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