The Importance of Compound Interest

It’s difficult to grasp

Compound interest is one of the most important concepts in personal finance, but it’s one that is sometimes difficult to appreciate.

That’s because the math just isn’t intuitive, no matter how quick you are with arithmetic. And some of the most commonly used examples are interesting but so hard to believe that they really aren’t useful.

If you fold a piece of paper in half about 40 times, for example, it will form a stack high enough to reach the moon. That’s interesting but hard to imagine.

That’s why I recommend this short video, which does a good job illustrating how very small things can end up having a very large impact. This example uses dominos, but it’s a good representation of what can happen with your savings over time.