Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.
-Albert Einstein
Anu nga ba ang compounding Interest?
Compound interest is commonly used in every loan you take halimbawa housing, auto and even credit cards. Kung hindi mo alam paano ito gumagana, naku patay kang bata ka!
Don’t get intimidated, hindi naman kailangan na sobrang talino ka para maintindihan mo ito. All you need to remember and understand to get the real-life effect of compound interest is the RULE OF 72.
RULE OF 72 is a method to determine how much time your money needs to double with the use of interest rate.
You only need to divide 72 by the annual interest rate and you’ll get the estimated number of years to double your money(or your debt).
Number of years to double your money(or your debt)= 72/annual interest rate
Let’s site some examples here:
For credit cards; Annual interest rate: 42% (3.5%/month x 12)
Number of years = 72/42
= 1.71 years (no longer than 2 years. ouch! doesn’t even include penalties)
For time deposit; Annual interest rate: 3.5% (still depends on bank and amount of money you invested)
Number of years = 72/3.5
= 20.57 years (just a little over 20yrs)
So anung napansin mo?
You can clearly see here that debts doubles faster than your investment. That’s why you should properly plan your finances in a way that you won’t utilize debt for those unexpected time and emergencies. If debt is planned and used carefully, they may help your finances. Hindi masama manghiram/mangutang, kailangan mo lang planuhin ito ng mabuti in a way na hindi ka masasaktan nito sa huli.
There are many places where you can invest and grow your savings such as mutual funds, real estate investments etc. but if you don’t have proper solid financial foundation or set up, your finances are bound to go down by debts or any unexpected events very easily.
Compound interest is a double edge sword that can either help you or hurt you. It depends on how much knowledge you have in managing your finances.
-Albert Einstein
Anu nga ba ang compounding Interest?
Compound interest is commonly used in every loan you take halimbawa housing, auto and even credit cards. Kung hindi mo alam paano ito gumagana, naku patay kang bata ka!
Don’t get intimidated, hindi naman kailangan na sobrang talino ka para maintindihan mo ito. All you need to remember and understand to get the real-life effect of compound interest is the RULE OF 72.
RULE OF 72 is a method to determine how much time your money needs to double with the use of interest rate.
You only need to divide 72 by the annual interest rate and you’ll get the estimated number of years to double your money(or your debt).
Number of years to double your money(or your debt)= 72/annual interest rate
Let’s site some examples here:
For credit cards; Annual interest rate: 42% (3.5%/month x 12)
Number of years = 72/42
= 1.71 years (no longer than 2 years. ouch! doesn’t even include penalties)
For time deposit; Annual interest rate: 3.5% (still depends on bank and amount of money you invested)
Number of years = 72/3.5
= 20.57 years (just a little over 20yrs)
So anung napansin mo?
You can clearly see here that debts doubles faster than your investment. That’s why you should properly plan your finances in a way that you won’t utilize debt for those unexpected time and emergencies. If debt is planned and used carefully, they may help your finances. Hindi masama manghiram/mangutang, kailangan mo lang planuhin ito ng mabuti in a way na hindi ka masasaktan nito sa huli.
There are many places where you can invest and grow your savings such as mutual funds, real estate investments etc. but if you don’t have proper solid financial foundation or set up, your finances are bound to go down by debts or any unexpected events very easily.
Compound interest is a double edge sword that can either help you or hurt you. It depends on how much knowledge you have in managing your finances.
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