How much money will you be able to enjoy if you put $/€/£ 10,000 into your savings account, leave it for 7 years, and come back to it in 2022?

You might be twice as rich and look at a nice $/€/£ 20,000 without ever having done any extra work or without any additional money added to the original stash.

But you might also only look at $/€/£ 700 extra, just enough money to pay for a week’s holiday in a holiday resort. Not bad either, but certainly not good enough considering you spared the money for a whole 7 years.

How come you are twice as rich in one scenario, able to buy a small city car with the earned interest alone, while in the other scenario the interest will merely pay for a short holiday? It’s the power of compound interest.

The magic of compound interest

The beauty of compound interest is that in both scenarios the car or the holiday is paid for without you having to do any actual work. The work was done by your employees, your money. Their productivity increases with each additional year you leave them be. As the owner of the cash stash, you can just kick back and reap the benefits of their hard work.

The power of compound interest will, once your work force is big enough, get you to the golden shores much faster than you could ever achieve on your own. It is crucial, however, that the returns from your investments and savings are not spent. They need to be added directly to your existing work force. Whether it is dividend or interest payments, reinvesting them creates this marvelous effect that is compound growth.

Have a look at these examples:

Do you want to triple your wealth?

Therefore, if you put 10,000 into an investment earning you eleven percent return, you would be able to triple your money. Given that this is rather difficult to achieve, a more realistic seven percent will double your money after eleven years.

Do you want to double your wealth?

If you are less patient and only want to wait seven years, you are still in for a very nice surprise. At seven percent you would be able to add over 60% to your initial wealth without ever having to lift a finger.

Do you want to go on a nice holiday?

Okay, all the above figures are based on investment returns. What if you felt lazy and opted to just leave your money in your savings account? You might not be able to buy a double or triple your wealth, but it would pay for a nice holiday. How awesome your holiday would be depends on how long you lend the money to your bank. After eleven years you could go on a luxury holiday for a few weeks. But even after only five years it would pay for a plane ticket across the Atlantic and allow you to spend an awesome two weeks in a city of your choice or on a beach. And it did not even require you to sit in the office for hours. Your holiday is financed by your hard working employees.

Want a new computer:

Alright, alright, I hear you. Interest rates suck at the moment. But even if your bank is treating you really badly, not paying anywhere near you what you deserve for lending them money, you can still enjoy some nice returns after only a few years. You could, for instance, reward yourself with a new smart phone or computer after a short five years. After eleven years you could equip yourself with a whole new set of electronic gadgets.

But the best thing, regardless of how much money is produced by your savings and investments is to put the money straight back to work to enjoy substantially greater returns with each year you let your money do the work for you. Maybe one day even to a point where you no longer need to work at all and can follow your dreams and passions without having to rely on someone else paying you. Turn yourself into a business and let your own employees, your money, finance your life.

Continue to the mnemonic trick of money doubling