Cashtoons

What is Interest?

April 16, 2021

What is the key to making money over time?

key

Albert Einstein called it “the eighth wonder of the world”!

Einsten

Warren Buffet considers it “the best strategy (to build wealth), bar none.”

Buffett

If your money grows steadily, you’ll make money, but you might not turn $100 into $14,000 in your lifetime.

turtle

Compound interest changes the shape of the hill, and the way you get to the top.

helicopter turtle

To know what compound interest is, we have to answer: what is interest?

Let’s say that Nina needs $10 today.

Nina

Maria offers to give her $10 now.

ten dollars

But, in return, Nina will have to pay back, not just the $10, but also an additional $1 for every month she has not paid Maria everything she owes.

one dollar

The first ten dollars that Maria lends is the principal. The additional $1 a month is interest.

You can lend money, like Maria, but to the government. This is called buying a bond. The government will pay back the money you lent them, plus interest.

How can all those single dollars add up to more than the principal? Tune in next week to find out!

Sources:

sources

https://www.nerdwallet.com/banking/calculator/compound-interest-calculator

https://www.investopedia.com/terms/i/interest.asp

https://www.investopedia.com/terms/p/principal.asp#:~:text=Responsible%20Parties-,What%20Is%20Principal%3F,face%20value%20of%20a%20bond.

Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor


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