Compounding: Loans

Or investments

Money and possessions are a very effective tool that He uses to grow us up. Therefore, we shouldn’t ask, ‘God, why are You doing this to me?’ but ‘God, what do You want me to learn?’

Three Financial Planning Principles
1. There are no independent financial decisions.
2. The more long-range the perspective the better the decisions today.
3. Financial decisions made today have lifetime implications.

The Rule of 72

Have you heard of the Rule of 72? Its a very simple but profound principle. 72 divided by the interest rate reveals the length of time it will take for your money to double. For example, if you started supporting yourself at age twenty and for the next forty years you always spent $1000 less than you earned and you invested that $1000 each year in an investment earning at least 12.5% interest, at age sixty you would have an investment fund of $1,000,000.

Or if you are already at age forty, you can spend $10,000 per year less than you earn, invest it at 12.5% interest, and you can still accumulate the $1,000,000. The 12.5% and $1,000,000 are not magical nor necessarily even desirable, but they do illustrate what has been called the eighth wonder of the world - the "magic of compounding".

The Magic of Compounding

The magic of compounding results from the relationship between an interest rate and a time period. For a $10,000 investment:

Compounding can work for or against you. Investment through compounding reaps huge benefits in the long run, but it can also tie you down with interests.

Calculate your loan interest as well as your compounding interest with our calculators.