compound interest

courtesy google images

Ahh, The Beauty Of Compound Interest

Compound interest is a beautiful thing. It’s the dream tool for retirement investors. It is an investment tool that is rarely put to good use though simply because it is misunderstood. Since compound interest is so boring, dull and tedious, investors disregard it even though with proper discipline and the right amount of time, compound interest can work miracles with your investment money.

The goal of investing is for your money to grow; compound interest maximizes your investment’s growth. With compound interest you not only earn interest on your principal investment amount but you also earn interest on the interest accrued on that principal amount.

Using Compound Interest To Save For Retirement

The best way to use compound interest to your advantage is to start investing early in your career and make a disciplined effort to save regularly. The longer your money is invested, the more powerful compounding becomes.

How Much Money Do You Need To Retire

A retirement savings calculator or a TSP calculator can answer the question of how much money do I need to retire but those calculators cannot give you the discipline needed to start saving or stay diligent. In other words, any type of retirement calculator will provide you the mechanics of saving for retirement but not the effort it takes to make it happen; that comes from you. Your ability to save will do more for building up the amount of savings for the compound interest to work with than focusing on finding your target dollar amount.

It’s a tough question that everyone asks themselves at some point during their working years, how much do I need to retire? Calculators and compound interest formulas can give you a target dollar amount, but when you are serious about planning for retirement you need to go further than that and ask even tougher questions. You need to determine your personal retirement goals and where you are at when you decide to retire. How much cash flow will you need on a monthly basis to meet your basic living expenses? Did you include a financial cushion for unexpected expenses? Are you in debt? How much debt? Will you need to downsize your home? What do you want to do when you retire? golf? travel? charity work? part-time work? What age will you retire at? How long are you expecting your retirement savings to last?

Compounding Is Just The Start

Compound interest is a beautiful thing, combined with your efforts to save, save and save. Take advantage of time, start early, invest often. Let compounding work it’s magic.