What is Power of Compounding?
Power of Compounding
Power of Compounding is known as the eighth wonder of the world, in this topic today we are going to talk about what is Power of Compounding, and what we can benefit from using it, and it Why the eighth is known as wonder.
Regarding Power of Compounding -
"Albert Einstein has Said" - Compound interest is the eighth wonder of this world, one who understands it, finds it (EARN), and one who does not understand it pays it (PAY).
For Power of Compounding, we have to keep returning the benefits of Compound Interest on our money back for a long time.
And in this way we have to keep investing according to our financial goals and predetermined time till we achieve the "very big money goal" according to our Financial Goals.
Example - 10 Thousand to 10 crores
Yes, by using Power of Compounding to invest 10 thousand rupees, money can be made of 10 crores in 30 years,
Isn't it amazing - let's see how 10 thousand to 10 crores can be made?
For this, you have to invest 10 thousand rupees at the rate of 36% annual compound interest.
And the compound interest received every year is to be invested back for 30 consecutive years by adding to the previous total capital.
And in this way you will see that 10 thousand rupees becomes 10 crores in 30 years, taking advantage of 36% compound interest.
In this example,
If there was a simple interest, we would have got total profit = 36% of 10000 thousand every year = Rs 3600.
And for thirty years 3600, every year means total - 3600 X 30 = 108000 and basic amount is 10 thousand,
In this way the total amount will be - 1 lakh 18 thousand,
So friends, this is the difference between POWER OF COMPOUNDING and Simple Interest investment. You Saw,
Despite everything being the same, the difference is huge.
Time also 30 years, and Amount of Investment also 10 thousand
But the difference was, instead of using Simple Interest, using Compound Interests.
10 thousand rupees, time was 30 years and 36% according to the annual simple interest - 1 Lakh 18 Thousand .
10 thousand rupees, time 30 years and 36% per annum Compound Interest - 10 crores,
Now think to yourself .