How to Create Wealth ? ” Power of Compounding “

How to Create Wealth like Warren Buffet but every one is always searching for the Magic Lamp of Aladdin .

But the Real Magic Lamp of today’s World is the ” Power of Compounding “.Yes its the 8th Wonder of the World.

What is Compounding ? Compounding is earning interest on interest you have already earned on the Principal amount you have invested in Fixed Deposit , Mutual Fund or any other investment. Lets understand by example .

Suppose there are two Individuals A and B . Individual A earns Simple Interest 12 % Per Year and Individual B earns a Compound Interest of 12 % for 5 Years on amount of Rs. 10 Lakh . Rate of Interest 12 % , Amount of Rs. 10 Lakh and Time 5 Years is Same for both.

Individual A Earns Rs. 600000 as Simple Interest and Total Amount is Rs. 1000000 Principal + Rs. 600000 as Interest so amount after 5 Years is Rs. 1600000 .

Individual B Earns Rs.762341 as Compound Interest and Total Amount is Rs. 1000000 + Rs. 762341 as Compound Interest so amount after 5 Years is Rs. 1762341 .

So Individual B Earned 1762341-1600000 = Rs. 162341 more than Individual A.

This is the ” Power of Compounding ” . Earning Interest on Interest + Principal amount.

Simple Interest

Simple interest is calculated :

Principal Amount X Rate of Interest X Term of Loan in Years

Compound interest is calculated :

​Compound Interest=P×(1+r)t−P

P = Principal Amount

r= Rate of Interest

t= Time of Loan

Lets see another Table at Different Compounding Interest Rates from 5% to 11 % Per Annum for 5 Years :

Principal	1000000	1000000	1000000	1000000	1000000	1000000	1000000
Rate of Interest	5.00%	6.00%	7.00%	8.00%	9.00%	10.00%	11.00%
Time in Years	5	5	5	5	5	5	5
Total Amount After Compounding  Interest	1276282	1338226	1402552	1469328	1538624	1610510	1685058

Lets see another Table at Different Compounding Interest Rates from 5% to 11 % Per Annum for 10 Years :

Principal	1000000	1000000	1000000	1000000	1000000	1000000	1000000
Rate of Interest	5.00%	6.00%	7.00%	8.00%	9.00%	10.00%	11.00%
Time in Years	10	10	10	10	10	10	10
Total Amount After Compounding  Interest	1628895	1790848	1967151	2158925	2367364	2593742	2839421

Lets see another Table at Different Compounding Interest Rates from 5% to 11 % Per Annum for 15 Years :

Principal	1000000	1000000	1000000	1000000	1000000	1000000	1000000
Rate of Interest	5.00%	6.00%	7.00%	8.00%	9.00%	10.00%	11.00%
Time in Years	15	15	15	15	15	15	15
Total Amount After Compounding  Interest	2078928	2396558	2759032	3172169	3642482	4177248	4784589

Lets see another Table at Different Compounding Interest Rates from 5% to 11 % Per Annum for 30 Years :

Principal	1000000	1000000	1000000	1000000	1000000	1000000	1000000
Rate of Interest	5.00%	6.00%	7.00%	8.00%	9.00%	10.00%	11.00%
Time in Years	30	30	30	30	30	30	30
Total Amount After Compounding  Interest	4321942	5743491	7612255	10062657	13267678	17449402	22892297

The above examples shows How to Create Wealth more time you give to your Investment the Multiple of Return is Higher that’s the ” Power of Compounding “.

Rs. 1000000 at 5 % Interest after 5 Years= 1276282 10 Years = 1628895 15 Years = 2078928 30 Years=4321942

Rs. 1000000 at 12 % Interest after 5 Years=1685058 10 Years =2839421 15 Years = 4784589 30 Years=22892297

So this Clearly shows ” Power of Compounding ” works when Time given for Investment is Higher and Rate of Return is Higher .That’s How to Create Wealth ? .

So Start Investing Early .

Warren Buffet Documentary : https://www.youtube.com/watch?v=RYHPlLsdW0A

Also See :

Top Finance Documentaries :https://financeloaninsurance.com/top-finance-documentaries/

Monthly Budget Planner : https://financeloaninsurance.com/monthly-budget-planner/