The power of compound interest rates

In the previous blog post we mentioned that a 100 Euro saving per month after doing a proper spending review might not sound like a big deal, right? 


That is because we are not yet factoring in the power of compound interest rates! 


To understand that, let´s check the following scenario:

  • Every year, you invest those 1200 Euro that you cut from your discretionary expenses...
  • At an yearly interest rate of 5%...
  • For 15 years

Technically speaking, you have invested a capital of 18000 Euro, however you have in the bank almost 26000 Euro! This is because the capital has been working hard for you for all those years. 


The 1200 Euro invested at the end of Year 1 are worth almost 2400 Euro in a timespan of 14 years. 


This is something that cannot be stressed enough and is easily missed by people - because we tend to think in linear terms, but this is an exponential progression!


PS Yes, we did not consider inflation nor taxes - but for now let´s keep things simple ;-)

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