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Compound interest arises when interest is added to the principal, so that, from that moment on, the interest that has been added also earns interest. This addition of interest to the principal is called compounding.
As Albert Einstein says, "Compound interest is the eight wonder of the world. He who understands it, earns it. He who doesn't, pays it."
If you are a credit card user, it is best that you always pay your total amount due in FULL, and not just the minimum. Because as we all know, your remaining balance earns interest which is added to your next month's purchases and then compounds whenever you pay only the minimum.
If you want to make compounded interest work for you, invest. A lot of people do not invest. They spend whatever they have. Worse, they spend it even before they actually earn it. This is because they have this thinking that they have money coming on the next payday, or on the next bonus. But who would want to work his whole lifetime just to pay off debts and remain to have zero investments? I don't.
Let me share this beautiful quote from Aya Laraya, an investment advocate. He says, "When you invest today, you are buying a day that you do not have to work."
Invest today. It is really not about how much you earn. But how much you invest. Make compounded interest earn for you.
Reference:
1. http://en.wikipedia.org/wiki/Compound_interest
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