Andy Coates Blog

Recently I received an email asking me how to get rich, taken aback with the question as theres no surefire quick answer i decided to rack my brain at the safes way to get rich without any or VERY LITTLE risk. There are thousands of get rich quick schemes out there saying you can earn $1000 per day within 3 months but i prefer to take the get rich slowly approach! I personally have several strategies on the go currently all delivering a little profit here and there but most importantly all of these investments/business are continually growing little by little each day. The effects may not be apparent straight away but when you view these over the long tern you realize what a staggering amount of money they will return. One of these is quite simply one of my hight interest savings accounts, it may not seem very glamorous but read on and the effects of compound interest will become apparent!

What is compound interest?!

Compound interest is probably the best thing you can learn about if you are serious about becoming rich, this wont make you a millionaire overnight will make you rich over the long term! All savings accounts pay a percentage of interest on whatever money you have in for a period of time. For example, if you invest £1000 in a savings account with an interest rate of %6, after 1 year you will have earned £60 in interest (6% 0f £1000) leaving you with an end of year balance of £1060. Not bad eh? £60 for doing nothing apart from letting the bank look after your money for you!

The Clever Part!
Now if you do exactly the same for another year and invest another £1000 the starting balance will be £2060 which will comprise of £1000 initial investment, £60 interest and another £1000 yearly investment. At the end of your second year you will be due for your next interest payment which will be 6% on what you have put in (£2000) plus your interest (£60) so now you are earning interest on your interest!! Just to quench your curiosity your balance for the end of year 2 would be £2183.60 through compound interest even though you only initially invested £2000. So after 2 years you have earned £183.60 in interest, once again, not bad for leaving your money in the bank!

I know it doesn't really seem like much!
I know that earning £183.60 over 2 years doesn't seem like much, but i said this was a long term strategy, were never going to get rich quickly! Lets skip forward 10 years and see how our investment would look like. So each year for the previous 10 years we have deposited £1000 into a high interest savings account letting the interest build up and earn interest on the interest on the interest….and so on! At the end of year 10 using my spreadsheet to work it out our balance would be £13971.64, thats an initial investment of £10,000 and earned interest of £3971.64. Now things are looking better, nearly 4K earned in interest for putting away a small yearly sum. Once again lets skip forward another 10 years and see how it has grown in 20 years.

So here we are, 20 years down the line, we have religiously been investing away £1000 each year into our high interest savings account. Not only that once again our friend, compound interest has been working its magic and we now have a balance of £38992.73. Thats a magnificent £18,992.73 of interest, after 20 years we have nearly doubled our money, if we had stuck it under the mattress we would have saved only £20,000 compared to the compound interest we could have earned. The secret of compound interest is time, investing a small amount over a LONG periods will give much greater returns than investing larger amounts over the shorter term.

If you are curious to see what would happen if we continued to invest for another 10 years, totaling 30 years all together here is what we would have earned. At the end of year 30 our balance would be £83,801.68 from our investment of only £30,000. This would have earned us a whopping £53,801.60 in interest, more than doubling your initial investment! And just a quickly for year 40 our balance would be £164,047.68 all from the effects of compound interest!

To Sum It Up

Once again i must reiterate that for compound interest to have the desired effects you pus invest over the long term, even just a little each week/month/year can have staggering effects. If you do decide to invest like this try and use a tax free savings account, you don't want the tax-man taking a chunk of you savings each year, this can seriously detract from the effects of compound interest! This is just a quick guide to show you the benefits of compound interest and putting a little aside each year, for further reading I swear by this book, its a great read and an education for people of any age! Learn To Earn

I am not a qualified financial adviser so before making any decisions you are not sure of please consult a qualified financial adviser.

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