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BVC #21: True Power of Compound Interest [VIDEO]

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It doesn’t take a genius to know that compound interest is a pretty remarkable thing. When your interest earns interest… and then earns some more, it can make for some large numbers over a long period of time. That part isn’t so difficult to understand even though plenty of people have written about it.

So why did I make a video about the “true power” of compound interest? Watch. :)

Bargaineering.com #21: True Power of Compounding Interest from JIM WANG on Vimeo.

As a quick aside, this video was shot with a better camcorder and improved lighting. If there are any video mavens out there, I’d love to hear your tips on how I could improve the quality of these videos… short of replacing me, of course! :)

As you saw in the video (or didn’t, I’ll assume you watched it!), waiting just a single year really puts you at a disadvantage to your better saving peers. So many people delay their savings because of life circumstances, and that’s fine, but you have to realize that you’re giving up 40 years of interest, not just one.

So, if you can save a few dollars today, do it. By the time tomorrow rolls around, you’ll have lost out on a long time.

{ 27 comments, please add your thoughts now! }

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27 Responses to “BVC #21: True Power of Compound Interest [VIDEO]”

  1. Katie says:

    Very informative! great job!!

  2. Christina says:

    Good video, it really makes me wish I had done a better job of saving in the past. I guess I will have to try to catch up but I can see it will be hard.

  3. Anthony says:

    Wow! There have been numerous discussions about compounding interest on the Money Tips Network.

    I can only agree with everything that was said in the video. Start saving now, everyone! :)

  4. GREG says:

    Hello Jim,
    Once again i would like to thank you for the information you provide all of us. I thought your video was very good.Never to long and always informative. Your correct when you say alot of people dont save because of life circumstances.I fall into that catergory. I need to make more of an effort to save a little at a time. Your video got me thinking of ways to do this and i plan on making it happen.Thanks again.

  5. Dina says:

    I just want to know where John & Joe are getting 6%. Sign me up!

    • Jim says:

      It’s over the next forty years hahahaha :)

      • Joyce says:

        Jim, that is really not funny. You guys always go on about compound interest, but it just doesn’t come out to anything much with todays .001% interest, if you are lucky, that savings accounts give out.

        • Chris says:

          There are still a lot of good rates out there. You just have to be resourceful and keep your money on the move.

  6. Debra says:

    Hi, Jim. I’m not a video maven by any means, but I thought the quality of your video was excellent — including the audio portion, which I often have trouble with. No need for improvement as far as I can see. Your substance, too, tho pretty basic, was a good reminder of an important savings principle. Thanks.

  7. Walter says:

    Good video. Keep them coming

  8. Mike Piper says:

    Just a question: What was the “better camcorder”? The video came out great. (And what were you using before?)

  9. Darin says:

    Please no more auto-play when I open the website.

  10. Great video! But it makes me feel bad that I didn’t open my Roth IRA until I was 26, instead of 18 like so many other PF bloggers.

    Also, I really want 6% interest… :)

  11. zapeta says:

    Thanks Jim, enjoyed the video!

    I had a Roth IRA open when I was 18 but I didn’t contribute to it regularly. I wish I would have! I can only imagine how much money I left on the table…

  12. Greg says:

    Great post, and timely. I was lecturing a co-worker yesterday about this very subject. Needless to say I have forwarded a link to him.

    Word of mouth is a powerful thing!

    Thanks, and keep up the great work!

  13. Script pls? says:

    I know “compound interest” is good and I’d like to really understand how it works. Thing is, I’m deaf and I don’t understand what you’re saying on your video. Is there any chance you have a script to go with that video?

    Thanks – love the site!

    • Jim says:

      How about if I just explain the video, rather than give a script? Compound interest is powerful because as your savings accrue interest, the interest is added to the savings amount and it too will earn more interest. The point of the video was that if you delay just one year (or day, really), it doesn’t cost you a day’s or year’s worth of interest, it will cost you forty years. Or thirty years. Or however long your savings period is. The math on the board simply illustrates that using two examples of people saving $100 a month. John starts one year earlier and has forty years of savings, Joe only has 39.

      After forty years, JOhn has $199,149 in savings while Joe has only $186,417. That makes sense because John has contributed an extra $1,200 and saved one year longer. The difference between the two is ten times the $1,200 savings difference because of forty years of interest. Even if you let Joe catch up and John stops saving, he’s still ahead by a good $12,000 after an additional year.

      • Script pls? says:

        Got it – it’s very clear, thank you. Wow. Now I’m really motivated to move the excess out of my non-interest-bearing checking account. Thanks, Jim!

  14. Thanks for a great post Jim. I don’t think anyone can argue with the power of compound interest. I actually just wrote a similiar post about compound interest looking at it from a little different perspective. It’s title, “It’s Just 3 years” http://evolutionofwealth.com/2009/10/20/its-just-3-years/
    I would love to hear what you think.

  15. Compound interest really is amazing. Albert Einstein is rumored to have declared it “the most powerful force in the universe”.

    If a person has a true and deep understanding of what compound interest is they are well on their way to becoming wealthy. Someone who really understands compound interest would never carry a balance on a credit card and would never have money in an account that gained 0% interest (you’re giving the bank a loan for free).

    I remember watching an interview with Warren Buffet where he said that he was outraged when his wife bought $5000 worth of furniture (this was after he was already a billionaire). He said something like, “Don’t you realize how much $5000 is in 20 years at 5% interest?” He didn’t think of the money in terms of its current value, but what it would be in the future. If you have that mindset and act on it then you will become wealthy.

  16. Damon Day says:

    I couldn’t agree with you more Jim. I always tell my clients that it is much easier to save their way to wealth than it is to earn their way to it. That is simply because of the power of compound interest. Anyone with an average salary can amass quite a bit of wealth over a lifetime of working if they just put some money away every month, live within their means and stay out of consumer debt. This is why carrying balances on credit cards is one of the single biggest wealth destroyers out there. Most people don’t realize the opportunity costs of buying things on credit. Get out of debt as fast as you can, and then add those minimum payments you were making to your 401K or other investment vehicle and start building your nest egg rather than your bankers.

  17. I agree that the video quality is perfectly fine and already of the typical video post one would usually see.

    I love the perspective you provide on delaying your savings/investments for a year or more. You lose out on that year plus the years of compounded interest you would have earned on it. It’s a wonderful thing indeed!

  18. Wilma says:

    Good video and now I feel guilty. I never looked at it from that angle before. Now I’m going to have to win the lottery or get an inheritance from a long lost relative to catch up. =)

  19. David says:

    An interesting fact about compound interest is if you keep increasing $10,000 by 10 percent every year then you will have about $1,000,000 after 46 years.

  20. FlyFisher says:

    “If a person has a true and deep understanding of what compound interest is they are well on their way to becoming wealthy.” Well put Arabic Student. Saving that little bit is such a hard thing to do when money is tight, and it is even harder to keep it in there!


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