Compound interest is key determinant of wealth, stop negative compounding
Compound Interest Rate
The Wealth Formula is the compound interest rate formula.
The formula is widely taugth and can be mastered academically with a little work. To live it and use it to grow wealth, is harder. A good way to master the compound interest formula is to build spreadsheets to play with combinations of investment, rates and duration.
The following Excel spreadsheets are not too complicated, but can still provide insight into the power of compounding. Just right click on the graphic to open or download the spreadsheet. The first spreadsheet uses the above formula to calculate Future Value when you input Present Value, Compound Interest Rate and numer of periods
The second spreadsheet assumes a series of equal investments versus the single payment sample above.
I used the above spreadsheet to explain to my 30 year old son, what his 'pack a day' smoking habit was costing him. I thought it was pretty powerful that his cigarettes would cost him over $250,000 by the time he reaches retirement. He hasn't quit yet.