## Compounding is the most important thing to understand to have your money working for you, rather than be a wage slave.

**Compounding** is where the money you make then makes more money, and that money then makes more money i.e. money for nothing! This does not sound exciting and yet it is a force that over time that can create the most magical wealth. If only we were taught this at school! Einstein described compounding as *‘the eighth wonder of the world’*, and he was right! When we have compounding working for us (by investing) it is a force that can create the most incredible wealth. It is an **asset.** When it is working against us the interest on consumer debt) then it drains wealth away from us and is a **liability.**

Check it out with this natty little **compound interest calculator**

### Take 1

Choose your currency

Pop in **£1000 **as an **initial lump sum**

Put **£0 **for the **amount you will add every year**

Choose **20 years** as a time frame

Choose an **interest rate of 6% **(the average rate of return from investing in the stock market is 6-8%)

Your interest is paid **1 times a year**

At the end of that time you have done** **nothing and your £1000 is now** £3207!**

### Take 2

Increase the time frame to **40 years. **This gives you nice tidy sum of **£10,285!**

### Take 3

You are now going to **add £1200 a year** to the pot. Everything else stays the same. After 20 years you have **£49,998!** After** 40 years **you have** £207,142!! **This is a profit of **£158,000!!!**

(the total amount minus the money you put in over 40 years)

**THIS **is power of compounding and why you want it **working for you!**

*Image courtesy of Yeshi Kangran*

*Disclaimer : Simple Successful Stocks are not financial advisors and the content of this article is for financial education only. Please read our disclaimer here.*