The 8th Wonder of World

Guess Whats the 8th Wonder of the world. Albert Einstein states that Compound Interest is the 8th Wonder of this world.

"Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”

http://www.youtube.com/watch?v=2GQ5LxE8OBk

It may sound odd, but it really isn’t once you know what Compounding is. Here’s a little secret: compound interest is a Rich Man's best friend. It's actually  free money. Seriously. But don’t take my word for it. Just check out this story of Raj and Ravi to understand the power of compound interest.

Raj and Ravi were friends who grew up together. They both knew that they needed to start thinking about the future. At age 20, Raj decided to invest Rs. 20,000 every year for eight years. He picked investment funds that averaged a 12% interest rate. Then, at age 26, Raj stopped putting money into his investments. So he put a total of Rs 1,600,00 into his investment funds.

Now Ravi didn’t start investing until age 27. Just like Raj, he put Rs. 2,000 into his investment funds every year until he turned 65. He got the same 12% interest rate as Raj, but he invested 23 more years than Raj did. So Ravi invested a total of Rs. 78,000 over 39 years.

When both Raj and Ravi turned 65, they decided to compare their investment accounts. Who do you think had more? Raj, with his total of Rs. 16,000 invested over eight years, or Ravi, who invested Rs. 78,000 over 39 years?

Believe it or not, Raj came out ahead … $700,000 ahead! Ravi had a total of Rs. 1,532,166, while Raj had a total of Rs. 2,288,996. How did he do it? Starting early is the key. He put in less money but started eight years earlier. That’s compound interest for you! It turns Rs. 16,000 into almost Rs. 2.3 million! Since Raj invested earlier, the interest kicked in sooner.

If you save money every month, for a long enough period of time, you will become a millionaire.

Here's a Compounding calculator