Live your life with arms wide open Today is where your book begins The rest is still unwritten

“I break tradition. Sometimes my tries are outside the lines. We've been conditioned to not make mistakes. But I can't live that way” ‘Unwritten’ Song by Natasha Bedingfield

Her Wealthy Club Newsletter: Issue #5

Theme: "Unwritten" – Embrace the Magic of Compounding Interest

Dear Her Wealthy Club Members,

Welcome to the fifth issue of our newsletter, where we continue to inspire and uplift your financial journey. This month, we're diving into the powerful world of compounding interest – a concept that can transform your financial future and elevate your confidence in achieving financial freedom.

Much like the lyrics of our theme song, "Unwritten," compounding interest allows you to embrace the unknown possibilities and write your own financial destiny. As Natasha Bedingfield sings, "Feel the rain on your skin, no one else can feel it for you, only you can let it in." Let’s talk about controlling what we can control and working to change everything else. It’s about having empathy and grace for ourselves and others, realizing that there's only so much we can control about our money and financial standing. Policy and larger systems have to make up for the other parts.

Let's explore how you can harness the power of compounding interest while controlling what you can. For example, putting your cash into a savings account that compounds interest instead of leaving it in a checking account with negligible returns.

Real-Life Examples of Compounding Interest

The Magic of Starting Early:

Imagine two friends, Sarah and Emma. Sarah starts investing $200 a month at the age of 25, while Emma starts investing the same amount at 35. Both invest until they are 65 with an annual return of 7%. Sarah ends up with significantly more wealth than Emma, despite both investing the same monthly amount. This difference is due to the power of compounding interest over time.

The Power of Reinvestment:

Consider a simple savings account. By reinvesting the interest earned each year, your initial deposit grows exponentially. For instance, a $10,000 deposit at an annual interest rate of 5% will grow to approximately $16,289 in 10 years if the interest is compounded annually.

The Role of Dividends:

Investing in dividend-paying stocks is another way to harness compounding interest. Reinvesting dividends can lead to substantial growth in your investment portfolio over time. Companies like Johnson & Johnson and Coca-Cola have long histories of paying and increasing dividends, making them prime candidates for a compounding strategy.

Tips and Tricks to Achieve Better Compounding Interest

1. Start Early (& it’s never too late!)

The earlier you start investing, the more time your money has to grow. As the song goes, "Today is where your book begins, the rest is still unwritten."

2. Consistent Contributions:

Make regular contributions to your investments. Even small amounts can grow significantly over time through the power of compounding.

3. Reinvest Earnings:

Reinvest dividends and interest earnings to maximize growth. This practice allows you to earn interest on your interest, accelerating your wealth accumulation.

4. Choose High-Interest Accounts:

Opt for savings accounts, CDs, or other investment vehicles that offer higher interest rates. Even a small increase in the interest rate can lead to substantial gains over time. However, always check the terms. People often worry, "Can I get my money if I need it? What terms does it have? Do I have a penalty if I retrieve it whenever I want?" Understanding these conditions is crucial to making informed decisions.

5. Be Patient:

Compounding interest is a long-term strategy. Stay invested and be patient, as the greatest benefits are realized over decades, not just years.

6. Diversify Your Portfolio:

Spread your investments across different asset classes to minimize risk and enhance potential returns.

Personal Note:

I recently checked my modest mom's savings portfolio and was petrified to find one product with terms that seemed unfavourable. It made me realize that these conditions can be confusing for the elder people (and not only) and might not always be clearly explained. It's alike to praying for a fit body without putting in the time and commitment. Always scrutinize the terms and conditions before signing up for any financial product.

4. The Psychology of Compounding Interest

In "The Psychology of Money" by Morgan Housel, the author delves into the behavioral aspects that influence our financial decisions. Housel notes, "The power of compounding is more impressive when you have humility, patience, and a long-term perspective." This reinforces the idea that to truly benefit from compounding interest, we need to maintain a disciplined and long-term approach to our investments.

Housel also highlights the story of Ronald Read, a janitor who amassed an $8 million fortune by consistently investing in blue-chip stocks and letting compounding do the rest. This story epitomizes the concept of controlling what you can – regularly investing and allowing time to magnify your efforts.

Funny Comparisons: Compounding Interest in Life and Relationships

Compounding interest isn’t just a financial concept; it can also apply to our relationships. Just as regular contributions to your savings grow exponentially over time, small, consistent acts of kindness and love can build strong, lasting relationships.

Healthy Relationships:

Imagine you decide to compliment your partner every day. A small act, but over time, it compounds into a relationship filled with positivity and appreciation. It’s like investing in love stocks that pay dividends in the form of happiness and connection.

Friendships:

Think of your friendships like a diversified portfolio. Spending regular quality time, offering support, and sharing experiences can grow a robust and resilient bond. These little investments in your friendships compound into lifelong connections that weather any storm.

Family Bonds:

Investing time in family activities and traditions compounds into cherished memories and a strong sense of belonging. Just like a well-managed financial portfolio, these emotional investments pay off in terms of deeper family ties and mutual support.

Resources for Further Learning

Books:

- Financial Feminist by Tori Dunlap:

In "Financial Feminist," Tori Dunlap emphasizes the importance of compounding interest in building wealth. She explains, "Compounding interest is the ultimate form of passive income. It’s your money making money, and that money making more money, like a financial snowball rolling down a hill." Dunlap's book is a must-read for anyone looking to understand how to leverage compounding interest to achieve financial independence.

- Girls Just Wanna Have Funds by Kaye & Gill Fielding:

This book provides a practical and empowering approach to personal finance for women. The authors highlight the power of compounding interest with relatable examples, making it clear that financial freedom is achievable for anyone willing to take control of their finances. "Invest early, and let time and compound interest work their magic. It’s the closest thing to a financial superpower that we have."

Articles:

- The Power of Compound Interest: Understanding the Basics https://example.com

- How Compound Interest Works and Ways to Benefit From It https://example.com

YouTube Channels:

- Graham Stephan https://www.youtube.com/channel/UCV6KDgJskWaEckne5aPA0aQ – Offers insightful videos on personal finance and investing.

- Andrei Jikh

https://www.youtube.com/channel/UCGy7SkBjcIAgTiwkXEtPnYg – Breaks down complex financial concepts, including compounding interest, in an easy-to-understand manner.

Podcasts:

- Afford Anything https://affordanything.com/shownotes/ – Hosted by Paula Pant ?? , this podcast explores financial independence and the power of investing wisely.

- ChooseFI https://www.choosefi.com/listen/– Focuses on financial independence and investing strategies, including leveraging compounding interest.

- The Clever Girls Know Podcast https://www.clevergirlfinance.com/podcast/ – Covers a range of financial topics with practical advice and inspiring stories from women who have achieved financial success.

Social Media Influencers:

- Tori Dunlap (@herfirst100k)(https://www.instagram.com/herfirst100k) – Financial educator who empowers women to take control of their finances.

- Humphrey Yang @humphreytalks

https://www.instagram.com/humphreytalks – Shares valuable financial tips and insights on investing and wealth building.

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As we close this issue, remember that "No one else, no one else can speak the words on your lips. Drench yourself in words unspoken, live your life with arms wide open." Embrace the power of compounding interest and take charge of your financial future today!

Stay inspired, stay abundant and wealthy,

Her Wealthy Club

Disclaimer: HerWealthyClub information is for educational purposes. If you have any doubts about the merits of an investment, you should seek advice from an independent financial advisor.