Your finances and harnessing the power of compound interest.

What is Compound Interest? It’s addition of interest to the principal sum of a loan or deposit with interest being continuously earned – simply earning interest on interest.

By this definition, to harness compound interest, one would need to lend money to someone or save money or invest in something where interest will be earned, then re-invest the interest earned to earn more interest on interest. Making money work harder and this is how the banks/ lenders/ investors would make money and grow wealth. It requires good cashflow as the investment will need to be long term with cash tied up in such investment(s).

No wonder Albert Einstein referred to it as he did: “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it. Compound interest is the most powerful force in the universe.”

So how do you participate in this eighth wonder of the world when it takes a lot of time and money to compound interest to significant amount? The simple answer would be to start early, with whatever you can spare, wherever you can and be in it for the long term. Not a get rich quick scheme but a snowball effect for sure just like investing in property.

Whether you are earning it or paying it, would love to hear from you to discuss your overall finances starting with an obligation free finance health check. This maybe the start to get financially well positioned to harness the power of compound interest for a snowball effect.

Here are global influencers’ thoughts on compound interest and its snowball effect.

• "My wealth has come from a combination of living in America, some lucky genes, and compound interest." Warren Buffett
• “Remember the power of compounding. You don’t need to stretch for returns to grow your capital over the course of your life.” Walter Schloss
• “Investment is not only volatile, it is the key motor of the economy’s prosperity because it has a snowball effect.” Will Hutton
• “People often say motivation doesn’t last. Well, neither does bathing. That’s why we recommend it daily.” Zig Ziglar
• “Compounding is the magic of investing” Jim Rogers
• "The effects of compounding even moderate returns over many years are compelling, if not downright mind boggling" Seth Klarman
• “Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things” Charlie Munger
• “Long-term compounding is an investor’s best friend, so why get in its way” Guy Spier