Personal-Finance

Two forces, one number Your assets grow from exactly two sources: money you add and returns on money already there. Early on, the first dominates. Later, the second takes over — and that crossover is where most long-term wealth actually comes from. Simple interest grows linearly: 100 at 7% earns 7 every year, forever. Compounding grows geometrically, because each year’s return is calculated on a bigger base. That single difference is the whole story. ...

The question everyone asks Most calculators tell you what you will have. The question people actually ask is the other direction: “I want to reach a number by a date — how much do I need to put aside each month?” That is a solvable equation, and the answer is often more encouraging than people expect, because the growth does part of the work. Try it yourself in the savings goal calculator while reading. ...

The number that surprises everyone Borrow 1,000,000 at 4.5% over 30 years. The monthly payment is 5,066.85. Multiply it out and you pay back 1,824,067 — of which 824,067 is interest, about 82% of the amount you borrowed. Now the part that really catches people: in the first five years you hand over 304,011, but only 88,421 of it reduces the loan. The other 215,590 is interest. Five years of payments, and the balance has barely moved. ...