Have you ever thought of a way that you can use to earn even more money when you are investing in a company or even a project?
Let us tell you that it is very much possible, and there is a simple method that you can use called compound interest.
If you are unfamiliar with the topic, keep reading because we intend to tell you about it.
And in addition to that information, we will also tell you how this method is helpful in your daily life.
Keep in mind that there are certain factors and formulas that you have to know about to use the compound interest technique, so if you are ready and as excited as we are to learn about this great topic, come with us and let’s read this article together, shall we?
What is compound interest? (Formulas and examples)
Let’s start with an example, and that way, you can have a way better understanding of these unique methods.
Imagine that you are an investor and want to invest your money in a project, and finally, you find something suitable for your situation.
You know that by the time the investment period is over, you will have the original money amount plus the interest you have set.
However, what if there was a way to use and earn even more money?
This method is called interest on interest.
While it is relatively self-explanatory but let us elaborate.
Imagine that you get interested in the interest amount you will receive at the end of the investment period. This is how you can use it to earn even more money.
The way that you can calculate this amount is pretty simple; you have to use the formula below:
- [P (1 + I) n] – P
- P [(1 + I) n – 1]
In other words:
Compound interest = total amount and the interest in the future minus the principal amount of the present
In this equation:
- P = principal
- i = nominal annual interest rate in percentage
- n = number of compounding periods
Let’s see an example, shall we?
Imagine that you are investing your $10,000 for three years with an annual interest rate of 5%, then we will have:
- $10,000 [ (1 + 0.05 )3 – 1] = $10,000 [ 1.157625 – 1 ] = $1,576.25
As you can see, calculating compound interest is not that hard. You only have to know the parameters and how to use them, and we think the example can suffice for this section.
Now let’s move on.
Why is compound interest good in daily life?
In this section, we will tell you why many other financial advisors think that compound interest can be good in your daily life.
The reason behind this fact is that you have to invest in short periods and small amounts.
Consider investing in 1 year, and even if you are not an investor, you can easily use this technique to get more money from an investment.
The investment that you intend to make can be anything meaning that you can even invest in stocks, and you have to keep the facts and the formula that we gave you in mind to have a better investment.
And the next thing we must mention is that compound interest can have significant benefits when done on a small scale rather than millions of dollars of investment.
Now that you know why you should use compound interest in your daily life let’s get to the next section of the article and finish the statement.
Investing in some projects and companies is one of the excellent ways to make even more money, which is a fact that financial advisors in every region of the world suggest.
Keep in mind that if you are new to the industry, you must first do some research and even learn more and more about the techniques like this one more and more.
This guarantees a successful investment at all times.
Compound interest is one of the few strategies and actions you can take to have the best investment experience. Still, if you are unsure about the investment you are about to make, we advise you to get help from a professional advisor about this matter.
In this article, we have offered the formula and example to the compound interest, and we hope that by the information we have presented, you can do this action by yourself.
In the end, we are very much glad that you took the time to come with us on the “Importance of compound interest in our daily life?” article, and if you have anything to add to this article or if you have experience in the compound interest matter contact us via the comment section below or the contact page of the website