What is Compounding & how exactly does it work? Find out here!

Many of you may or may not know what Compounding is..

Understanding this concept is key to making sure your money habits work for you & not against you.

Compounding interest is the reason why we benefit from starting to invest as soon as possible. Your early investments generate interest resulting in an even higher investment for the next interest period. This cycle continues so that the interest you’re earning is continuously calculated based on a new, higher amount.

Is Compounding even worth it?

When it comes to your savings & investments absolutely! Savings accounts work on the compounding interest model too but current interest rates are much more lower than you can expect from the stock market.

Compounding can also work against you. If you have credit card debt from month to month, you aren’t only charged interest on your most recent buys. You’re also paying interest on the interest charged from previous months too.

Always try to find new ways to mitigate the negative impacts of compounding on your debt. Negotiating with your lender to lower your interest rate, paying more than the minimum, or better yet, paying your credit card bill in full every month are some of the best ways to do that.

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