subject: The Most Important Concept In Saving And Investing [print this page] We all know that saving money is importantWe all know that saving money is important. Unfortunately for some, the recent global financial crises taught them the hard way. Its recommended that we all have at least 4 months worth of living expenses saved up in a cash investment that would allow us easy access in case of en emergency like losing your job. Saving is not only important for us personally, but its important for the economy as well. Part of the reason why we are in such dire financial troubles right now is because people were spending more than they could afford.
Regardless of your age you need to start saving and investing. Why? Well its the easiest, the quickest and the most powerful way to build wealth and financial security for yourself and your family. There is one very important concept that you need to understand as it dictates all investments and how they work for you. Its the concept of compound interest.
Einstein described compounding as the 7th wonder of the world simply because it is so powerful. Basically, compounding is the process where interest builds on interest. because interest gets added to the principle, the principle grows and because that grows you can earn more interest. It just keeps compounding and growing - adding more on to itself all the time. because of this concept you can take a small amount of money and with the power of compound interest it can grow exponentially and because a huge amount.
Here's an easy way to think of it. When you double 2, you get 4. When you double 4 you get 8, When you double eight you get 16. This does not sound like much - yet, but when you keep doing this you will see that after just 10 cycles your 2 becomes 1,024. Now imagine you that was a $2 investment that you made 10 years ago?
by: John Burrow
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