Compound Interest - the Eighth Wonder of the World

"Compound Interest is the eighth wonder of the world, those who understand it earn it, those who don't, pay it." Sir Albert Einstein

This quote by arguably one of the most brilliant minds of the modern world stands no more true today than ever before. There are an innumerable amount of indebted South African's who if they truly understood the above quotation would make decisions a whole lot different.

The predicament many South Africans find themselves in is, struggling to pay off high interest bearing debt and borrowing from the proverbial Peter to pay Paul.

The injustice of this all is that most individuals where never trained in how to handle finances, most individuals never had the opportunity of being schooled in personal financial planning. By default many South Africans sign contracts every day binding them for five year, ten year or even longer contracts that hold us bound to a monthly payment.

How different the scenario would be if the monthly payments were used to fund carefully selected investments, that over time consistently produce inflation beating results. We would then be the beneficiary of compound interest and not victims of it.

Understandably so, this mentality does not come as a first nature to most people. However, the reality of the situation is that if you as an individual don't start investing astutely now, the compounding interest effect loses its power when it does not have a long term investment horizon.

It is a statistical fact that if you were to invest R500pm from the age of 21 - 35 and then leave that capital untouched and stop making payments on the investment but leave the amount in there till the age of 60, you would make more money than someone who started an investments at 35 at R500pm and kept it running till the age of 60. This in financial planning circles is knows as the "time value of money."

Its extremely important when discussing financial planning to make sure you are dealing with a skilled financial planner. Choosing an Independent Financial Advisor also would place you at an advantage as you know that you are truly being given unbiased advice.

At Chetstone Financial Consultants we take pride in providing you with professional, unbiased financial advise. Feel free to contact us for any of your Financial Planning requirements.

The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee or other group or individual. The blog does not constitute as financial advise in terms of the FAIS act. Chetstone Financial Consultants recommends that you contact a skilled, independent financial adviser for advice regarding financial planning.