Sunday, November 9, 2008

The Most Powerful Force in the Universe

Do you know what's the most powerful force in the Universe? Volcano eruption? Tsunami waves? Nuclear energy? According to Albert Einstein, the most powerful force in the Universe is compound intest. Compound interest is the situation where interest is added into the principal so that interest can be earned from the interest (and principal) from that moment onwards. For example, on 1 Jan 2008, you invested RM10K with a Bank XYZ at the interest rates of RM3.7%/year. By 1 Jan 2008, you will have RM10370 ((3.7% x RM10K) + RM10k) in your account. By using the compound interest method, you reinvest the RM10370 so that the interest of RM370 will also earn interest by the next year. Using the same example, by 1 Jan 2010, you will have RM10753.69 ((3.7% x RM10370) + RM10370) in your account. Here's a sample of the calculation of compound interest with RM10k invested at interest rate of 3.7%/year, for 20 years.Based on the calculations above, after 19 years, you will doubled your initial investment.
Lesson learned: Do not cash out or spend the interest generated from your Fixed Deposit account. It'll help you to reach your financial goal faster.

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