Have you ever wondered how some people seem to effortlessly build wealth? The secret often lies in understanding and harnessing the power of compound interest. It's not some complex mathematical formula reserved for financial gurus; it's a fundamental concept that anyone can grasp and use to their advantage. This article will break down compound interest into easily digestible pieces, showing you how it works and, more importantly, how it can pave your way to financial freedom.
What Exactly Is Compound Interest? The Definition
At its core, compound interest is earning interest on your initial investment (the principal) and on the accumulated interest from previous periods. Imagine planting a seed that grows into a tree. That tree then produces more seeds, which grow into more trees, and so on. Compound interest works similarly, allowing your money to grow exponentially over time. It’s often referred to as
