You would surely agree to the fact that better and intelligent financial planning leads to well-being, happiness and prosperity. The need for smart financial planning has gained much importance nowadays more so because of ever rising inflation, increased cost of living, rising costs of hospitalization, need for large sums of money for fulfilling various life stage needs as well as due to various other factors.
Thus financial planning is important as you require achieving your specific financial goals for which you will always need money power. And to start financial planning for yourself and your family, you invariably have to look towards investing your money.
Investment enables your hard earned money to earn you more. There are various Investment options through which you can invest your money like Equities, Mutual Funds, Fixed Deposits, etc.
However, one of the most powerful and advantageous element of Investment is its power of Compounding. Usually it happens that amidst various financial instruments for investment “Power of Compounding” tends to get ignored or is dramatically less utilized. But actually Power of Compounding is really powerful in building a healthy corpus for you.
In the financial world Power of Compounding manifests itself or is better known as Compound Interest. Power of Compounding or Compound Interest can be a magical avenue for building your financial status and helping you to become rich. It comes into the picture when you earn interest on top of interest. That means that you reinvest every time when you get the interest pay out on your invested sum of money. So your net invested sum increases and hence you get increased returns on the same rate of interest.
Let us take an example to explain the above situation. Suppose you have invested $1000 and expect to earn an annual return of 5 percent. So at the end of the year, you would earn an interest of $50. Now if you decide to reinvest the interest of $50 together with your initial investment of $1000, you would have $1050 working for you in the second year of investment.
So assuming that you get 5 percent returns in the second year, your invested sum being $1050, you would earn an interest of $52.50 at the end of the second year. Instead if you had not reinvested the interest of $50 with the originally invested amount, you would have again received $50 only at the end of the second year also. This gives you a glimpse of the Power of Compounding or Compound Interest due to which you are able to earn $2.50 extra.
Thus, you can very well imagine and contemplate the advantages you can get from compounding your money. With more invested sum, lengthier time of investment, greater compounding frequency and higher expected returns, you would definitely be able to build a healthy corpus and profound wealth. So if you follow this strategy and utilize the Power of Compounding or Compound Interest over a long term you would be successful in multiplying your wealth.
You can make Power of Compounding do wonders for you. Start with large initial sum of money, give yourself good amount of time (preferably long-term basis) and select a good medium of investment which also has the compounding element. You can opt for Bank FD, Recurring Deposits, Mutual Funds, Equities or even can go for SIP. Choose an option with which you are most comfortable, and that falls par with to your risk appetite. And remember to go for the Power of Compounding or Compound Interest and Reinvest the Interest on a regular basis.
Albert Einstein had once rightly said that compound interest is the greatest force in the universe. And now you can also understand and realize the Power of Compounding or Compound Interest. So start to utilize the Power of Compounding to make your money grow at an ever-accelerating rate.