Sunday, 7 February 2016

The Power of Compounding Interest Against You!

Compounding interest is the eighth wonder of the world, he who understands it, earns it. He who does n't pays it. Albert Einstein

Rich people used this formula to become rich and let their money grows and work for them. 

Poor people used the compounding interests against them such as taking personal loans, car loans, mortgage loans and credit card loans which charge more than 10% interest.

Here is a real life example from my colleagues. She borrowed 9000 pesos in her credit card from EW in 2009, after 7 years the outstanding balance ballooned :

The good thing, EW launched an amnesty program and ask her to pay only 15,932.02 pesos. The interest can double or triple your principal amount which is what we called "Compounding Interest Against You". 

There are 3 important learning on this situation;

First, Pay your debts on time. Avoid interest and penalties accumulation especially those with high principal amounts. Let the compounding interest work on your side not on the other way around.

Second, Budgeting. Spend within your limits. Many Pinoys have a lifestyle of one day millionaire (include myself) every time you have extras, it's already allocated for a new shoes, cinema, branded clothes etc. etc.
Why not invest your extras or put it on your retirement funds?

Third, Take advantage of the power of compounding interest. The earlier you start, the higher potential return you will get. Check financial investments that will suits you. On the other hand, here is a real life example of compounding from Mutual Fund King, Alfonso Gonzales, 300k turned 4M in 2014:

My goal is to share financial education and I would like to see you living in financial freedom.

Sincerely yours,

Jonathan Ruiz
Newbie Mentor

P.S. I recently developed a budgeting app to help you monitor your spending; here is the link:


Google Play:

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