How to Make Your Money Work for You
When it comes to growing your wealth, compound interest is one of the most powerful tools at your disposal. It’s often called the “eighth wonder of the world” because of its ability to turn small, consistent savings into significant wealth over time. But what exactly is compound interest, and how can you use it to your advantage?
What is Compound Interest?
In simple terms, compound interest is earning interest on your interest. Unlike simple interest, which only applies to the initial amount you invest (the principal), compound interest helps your savings grow exponentially because the interest you earn gets added to your balance – and then that new total earns even more interest.
For example, if you invest $10,000 in a savings account or investment that earns 5% interest per year, in the first year, you’ll earn $500. But in the second year, instead of just earning another $500, you’ll earn interest on $10,500 – bringing your total to $11,025. Over time, this compounding effect accelerates, making a huge difference to your long-term wealth.
The Benefits of Starting Early
The earlier you start saving and investing, the more you can take advantage of compound interest. Let’s compare two scenarios:
- Person A starts investing $200 per month at age 25 and does so consistently until age 55. Assuming an average return of 7% per year, they will have around $240,000 by the time they retire.
- Person B waits until age 35 to start investing the same $200 per month. By age 55, they will have only $114,000 – less than half of what Person A accumulated, despite contributing the same amount each month.
How to make compound interest work for you
- Start saving and investing now – Even small amounts can grow significantly over time.
- Contribute to your superannuation – Super funds benefit from compounding over decades, and extra contributions can have a big impact on your retirement savings.
- Consider automated investing – Setting up automatic deposits into a high-interest savings account, managed fund, or share portfolio ensures you stay on track.
The key takeaway? Time and consistency are your greatest assets. The sooner you start, the more your money will work for you.
Need help getting started? Contact Apex Financial Services today on (07) 3180 8831 or email admin@apexfsg.com.au to discuss how we can help you build a strong financial future.