Einstein Declares the Eighth Wonder with Wayne and Lisa Firebaugh

You want your money to work as hard for you as you work to earn it. The way to do that is to understand what Einstein referred to as the “eighth wonder of the world.” Wayne and Lisa talk about the incredible power of compound interest, and how it can make or break your financial plans.

• “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” -Albert Einstein
• We don’t want the value of our money to be static. When we invest it, we are looking for a return. The change of the value of that money happens at an increasing rate due to compounding, where your money earns money and the return also earns a return.
• Simple interest is when you have a $1,000 investment that pays 10% per year for the next 20 years. That means that your investment earns $100 per year, so at the end of the 20 years, you would have $3,000. With compound interest, you would have $6,727 instead.
• Another way to think about it would be, would you rather have a million dollars today or one penny doubled over the next 30 days? Most people will go for the million dollars, but the other option adds up to over $10 million by the end of the 30-day period.
• A very small increase in the compounding interest rate can add up to a very large amount of money. The effect is magnified by the compounding over time.
• How you choose your investments also has financial implications. Generally, you’re going to want to choose the highest returning investments. This will also affect how you are going to spend, both now and in retirement. Cost of living is also affected, through inflation and purchasing power.
• Investing conservatively can be great for minimizing risk, but it comes with a separate risk, namely not earning enough compound interest to compete with inflation.
• Your debt is also affected by compound interest. Take your credit card statements, for example, where you can see a small amount of debt turn into a gigantic financial obligation because of compounding.
• Small differences in rates can have a big impact on your ability to achieve your goals within a given timeframe.
• The earlier you start investing, the more time you have to take advantage of the benefits of compounding interest. A good way to think about it is in terms of how hard you work versus how hard your money works.
• You can choose to take a lower risk, but you will get a lower return. If you want to get to a certain goal, that means you will need to plan for a longer timeline to get there. There are always trade-offs with the three R’s: Risk, Reward, and Ready Access. The question for you, is it going to be worth it?
• Look at your debts and your investments. Pick one investment, and think about how you can get a higher return. Then pick one debt, and think about how you can reduce the rate.
• When planning your future, consider how compounding is going to affect your living, and make sure you run the numbers.

To explore working with Wayne Firebaugh to fireproof your money, please call 855-WAYNE KNOWS or check out at fireproofyourmoney.com.