The principles of growing are easily found in nature and an understanding of the miracles achieved in nature allows us to understand how these same principles apply to us as we climb the money tree.
You see the beauty of nature is that it gives back so much more than we put in. When the farmer plants a pumpkin seed, he doesn’t just get back one seed! Otherwise why would he bother? By planting a handful of seeds he may be able to harvest a truckload of pumpkins. Nature is very generous! Nature is programmed to be abundant! This same principle applies to our personal finances and indeed to everything we do, but first we need to get out into the fields and dig!
Have you ever heard the saying “Money breeds Money”. Well it’s absolutely true.
When you save money, the breeding cycle starts straight away. It may take some time to see results, but the process is definitely underway.
The rate at which your money grows is exponential. That means that one dollar becomes two, then the two dollars become four, then eight and so on. This happens because the growth occurs not only on the money you have invested but also on the interest you are earning. Here’s an example:
Say you invest $1,000 and every year it increases in value by 6%, this is what happens:
Your investment $1,000 In the first year it grows by 6% 60 So now you have $1,060 In the next year it grows by 6% again, which is 64 Now you have $1,124 In the third year it grows by another 6%, which is 68 And now you have $1,192
Notice how the amount of interest you are earning is increasing each year even though the interest rate has not changed and although you have not added to your initial investment of $1,000. The $60 grew to $64 in the second and then $68 in the third year. You are earning interest on the interest. This is known as compound interest. Your money may also be said to be “compounding at 6% per year” or earning “6% compound interest”.
Now as we all know, interest rates change from time to time and if for example the interest rate doubled to 12% do you think you would end up with twice as much money?