What is the equation to figure compound interest?

[TIM TIM TIM]

A guy we do work for let me borrow a audio tape. Its called like how to become a millionaire, its not a get rich quick sceem or anything. It just teaches ways to save and let your money work for you. Most of it is pretty obvious but the numbers this guy is coming up with are just insane. Hes talking $5 a day for 30-40 years with 10% interest being up over a million dollars? I'm not doubting it but how do you figure for yourself. Listening to the tapes really has got me motivated and shows how easy it really is to be well off in life.


To add, Ill throw in the guys main story of the disc I listened to today in case your interested.
He was telling the story of a couple, who made roughly 55k a year are retiring at 52 years old with a net worth of 2 million dollars. In reality it sounded easy, everything is always easier said then done though. Basically they started in the low 20's putting 10%of each pay check in a savings account. They had it automatically transfered from there checking every week so they didn't have to worry about it. They started doing the biweekly mortgage payment plan so that it equals out to having 1 extra payment a year on there house, which he said made the loan get paid off in ~24 years instead of 30. They also threw a few extra payments in when they could. When that got paid off, they rented it out and did the same deal with there next house and used the rent from the one they own to pay there mtg on the one they lived in. The husband also had a pension plan through his work and put a little every week in there (cant remember amount). Over the corse of time, with compounding interest and no mortgage payment. They have like 100k in a savings account, 60 something thousand in his pension, 600,000 or so between there IRA's and then the values of there home, which are now both paid off. he is retiring at 52 years old, only making 55k a year. Those figures are estimates from what I remember, they could be off but the basic principle is there.

[MianoSM]

$5/day = $150/mnth = $1,800/year

If you were to make %10 (which is a really hopeful amount to make each year), you would be making $180 the first year. On a simple excel spreadsheet you can continue the formula/math out so that it looks like this:

Year: Principle: Interest plus Principle
2008 $1,800.00 $1,980.00
2009 $3,780.00 $4,158.00
2010 $5,958.00 $6,553.80
2011 $8,353.80 $9,189.18
2012 $10,989.18 $12,088.10
2013 $13,888.10 $15,276.91
2014 $17,076.91 $18,784.60
2015 $20,584.60 $22,643.06
2016 $24,443.06 $26,887.36
2017 $28,687.36 $31,556.10
2018 $33,356.10 $36,691.71
2019 $38,491.71 $42,340.88
2020 $44,140.88 $48,554.97
2021 $50,354.97 $55,390.47
2022 $57,190.47 $62,909.51
2023 $64,709.51 $71,180.47
2024 $72,980.47 $80,278.51
2025 $82,078.51 $90,286.36
2026 $92,086.36 $101,295.00
2027 $103,095.00 $113,404.50
2028 $115,204.50 $126,724.95
2029 $128,524.95 $141,377.44
2030 $143,177.44 $157,495.19
2031 $159,295.19 $175,224.71
2032 $177,024.71 $194,727.18
2033 $196,527.18 $216,179.90
2034 $217,979.90 $239,777.88
2035 $241,577.88 $265,735.67
2036 $267,535.67 $294,289.24
2037 $296,089.24 $325,698.16
2038 $327,498.16 $360,247.98
2039 $362,047.98 $398,252.78
2040 $400,052.78 $440,058.06
2041 $441,858.06 $486,043.86
2042 $487,843.86 $536,628.25
2043 $538,428.25 $592,271.07
2044 $594,071.07 $653,478.18
2045 $655,278.18 $720,806.00
2046 $722,606.00 $794,866.60
2047 $796,666.60 $876,333.26
2048 $878,133.26 $965,946.59


If you can find a way to make 10% on your money every single year though, you're already going to be making great money. ; )

On a side note, I let Column B be the Principle, as well as the Interest + Principle from the previous year.

These numbers are just with $5/day, or $150/month, or $1800/year. Most people net more then $18,000 per year, but don't save more then %10 of their money. Kind of sad isn't it?

[MianoSM]

This one seems a little more believable at a rate of return of 3% each year (typical savings account). This is the sad part. Because no one can live off of $145,000 for the remainders of their lives in 2048...unless something really funky happens....

Year: Principle: Interest plus Principle
2008 $1,800.00 $1,854.00
2009 $3,654.00 $3,763.62
2010 $5,563.62 $5,730.53
2011 $7,530.53 $7,756.44
2012 $9,556.44 $9,843.14
2013 $11,643.14 $11,992.43
2014 $13,792.43 $14,206.20
2015 $16,006.20 $16,486.39
2016 $18,286.39 $18,834.98
2017 $20,634.98 $21,254.03
2018 $23,054.03 $23,745.65
2019 $25,545.65 $26,312.02
2020 $28,112.02 $28,955.38
2021 $30,755.38 $31,678.04
2022 $33,478.04 $34,482.39
2023 $36,282.39 $37,370.86
2024 $39,170.86 $40,345.98
2025 $42,145.98 $43,410.36
2026 $45,210.36 $46,566.67
2027 $48,366.67 $49,817.67
2028 $51,617.67 $53,166.20
2029 $54,966.20 $56,615.19
2030 $58,415.19 $60,167.65
2031 $61,967.65 $63,826.68
2032 $65,626.68 $67,595.48
2033 $69,395.48 $71,477.34
2034 $73,277.34 $75,475.66
2035 $77,275.66 $79,593.93
2036 $81,393.93 $83,835.75
2037 $85,635.75 $88,204.82
2038 $90,004.82 $92,704.97
2039 $94,504.97 $97,340.11
2040 $99,140.11 $102,114.32
2041 $103,914.32 $107,031.75
2042 $108,831.75 $112,096.70
2043 $113,896.70 $117,313.60
2044 $119,113.60 $122,687.01
2045 $124,487.01 $128,221.62
2046 $130,021.62 $133,922.27
2047 $135,722.27 $139,793.94
2048 $141,593.94 $145,841.75

[TIM TIM TIM]

yeah I was wondering how someone was able to get 10% a year. I figured 5 or so was a more doable number. So really if me and my fiance both saved 10% of our checks into a savings account, assuming it was a 4% account and we made 900 every 2 weeks. that would be roughly 129600 without interest. How are you adding that interest so it would compound as you are? I dont need to be worth 2 mill at 52 but it sure would be nice to be worth that much when i was maybe in my 60's. luckily im learning this at 20 years old and have some time to save :)

[TIM TIM TIM]

$5/day = $150/mnth = $1,800/year

If you were to make %10 (which is a really hopeful amount to make each year), you would be making $180 the first year. On a simple excel spreadsheet you can continue the formula/math out so that it looks like this:

Year: Principle: Interest plus Principle
2008 $1,800.00 $1,980.00
2009 $3,780.00 $4,158.00
2010 $5,958.00 $6,553.80
2011 $8,353.80 $9,189.18
2012 $10,989.18 $12,088.10
2013 $13,888.10 $15,276.91
2014 $17,076.91 $18,784.60
2015 $20,584.60 $22,643.06
2016 $24,443.06 $26,887.36
2017 $28,687.36 $31,556.10
2018 $33,356.10 $36,691.71
2019 $38,491.71 $42,340.88
2020 $44,140.88 $48,554.97
2021 $50,354.97 $55,390.47
2022 $57,190.47 $62,909.51
2023 $64,709.51 $71,180.47
2024 $72,980.47 $80,278.51
2025 $82,078.51 $90,286.36
2026 $92,086.36 $101,295.00
2027 $103,095.00 $113,404.50
2028 $115,204.50 $126,724.95
2029 $128,524.95 $141,377.44
2030 $143,177.44 $157,495.19
2031 $159,295.19 $175,224.71
2032 $177,024.71 $194,727.18
2033 $196,527.18 $216,179.90
2034 $217,979.90 $239,777.88
2035 $241,577.88 $265,735.67
2036 $267,535.67 $294,289.24
2037 $296,089.24 $325,698.16
2038 $327,498.16 $360,247.98
2039 $362,047.98 $398,252.78
2040 $400,052.78 $440,058.06
2041 $441,858.06 $486,043.86
2042 $487,843.86 $536,628.25
2043 $538,428.25 $592,271.07
2044 $594,071.07 $653,478.18
2045 $655,278.18 $720,806.00
2046 $722,606.00 $794,866.60
2047 $796,666.60 $876,333.26
2048 $878,133.26 $965,946.59


If you can find a way to make 10% on your money every single year though, you're already going to be making great money. ; )

On a side note, I let Column B be the Principle, as well as the Interest + Principle from the previous year.

These numbers are just with $5/day, or $150/month, or $1800/year. Most people net more then $18,000 per year, but don't save more then %10 of their money. Kind of sad isn't it?

Very sad, Im really glad I get to learn this young. i mean 10% is such a small amount.

[Newguy07]

principle = C(1 +R\N)^NT


C = starting principle
R= rate in decimal format
N= number of times compounded usually 12 if monthly
t=time in years


so if you start out with 10,000 invested for 3 years compounded monthly at 6%


10,000(1+.06/12)^(12*3)

[TIM TIM TIM]

o, i thought it would be easier then that, i failed math.. thanks anyways :lol:

[MianoSM]

I'd like to see where someone can make 6% monthly, that's over 72% yearly.

If you made that kind of flow you wouldn't be anywhere near a computer I don't think.

As the site says, yearly is pretty much the way to go - the only time you'd use monthly or a smaller amount would be if the bank was giving you a monthly interest, which would most likely be around 3-4%/12, or %.25.

Honestly the only time that kind of interest is worthwhile of tracking is when you already have a huge capital/principle invested. Otherwise the yearly interest compound is the way to go, and you'd want to use a 1, not a 12 for your calculations above.

http://math2.org/math/general/interest.htm

[corey r.]

I'd like to see where someone can make 6% monthly, that's over 72% yearly.



His formula looks correct. Its 6% compounded monthly, not 72% APR.

If you do the math on compounded weekly, daily, annually... it makes very little difference in the final amount.

[TIM TIM TIM]

my fiances company will match ira contributions up yo 4% of her check.so we are doing that and then going to start doing the 5 dollars a day deal into a savings account untill there is a nice chunk and then start putting it in cd's and other things that are yielding nice interest numbers at the time. Would this be an ideal set up or are there better ways to go about it.
My job now is pretty much cleaning the house since construction has got so slow but Im going to go to school to be a firefighter which will have there ira planns and so forth.

[Newguy07]

my fiances company will match ira contributions up yo 4% of her check.so we are doing that and then going to start doing the 5 dollars a day deal into a savings account untill there is a nice chunk and then start putting it in cd's and other things that are yielding nice interest numbers at the time. Would this be an ideal set up or are there better ways to go about it.
My job now is pretty much cleaning the house since construction has got so slow but Im going to go to school to be a firefighter which will have there ira planns and so forth.

Sounds like a plan. ALWAYS use the benefit of the 4% of the company match. DEFINITELY worth it. I mean it is free money. Who is the company that gives ou the IRA? Is it in a reteriment fund suitable for her age ground? 2045?

[TIM TIM TIM]

hell if i know, its just a company matched ira is all I know :lol:. I did the max amount they would match. She just started getting benifits last month, I should get more details on all of that though.

[MianoSM]

Check this out, it's pretty sad:

Age Salary* Principle Invested** Company Matched*** Total Invested Retirement Amount
26 $36,000.00 $3,600.00 $2,376.00 $5,976.00 $5,976.00
27 $37,440.00 $3,744.00 $2,471.04 $6,215.04 $12,191.04
28 $38,937.60 $3,893.76 $2,569.88 $6,463.64 $18,654.68
29 $40,495.10 $4,049.51 $2,672.68 $6,722.19 $25,376.87
30 $42,114.91 $4,211.49 $2,779.58 $6,991.07 $32,367.94
31 $43,799.50 $4,379.95 $2,890.77 $7,270.72 $39,638.66
32 $45,551.48 $4,555.15 $3,006.40 $7,561.55 $47,200.21
33 $47,373.54 $4,737.35 $3,126.65 $7,864.01 $55,064.22
34 $49,268.49 $4,926.85 $3,251.72 $8,178.57 $63,242.78
35 $51,239.23 $5,123.92 $3,381.79 $8,505.71 $71,748.50
36 $53,288.79 $5,328.88 $3,517.06 $8,845.94 $80,594.44
37 $55,420.35 $5,542.03 $3,657.74 $9,199.78 $89,794.21
38 $57,637.16 $5,763.72 $3,804.05 $9,567.77 $99,361.98
39 $59,942.65 $5,994.26 $3,956.21 $9,950.48 $109,312.46
40 $62,340.35 $6,234.04 $4,114.46 $10,348.50 $119,660.96
41 $64,833.97 $6,483.40 $4,279.04 $10,762.44 $130,423.40
42 $67,427.32 $6,742.73 $4,450.20 $11,192.94 $141,616.33
43 $70,124.42 $7,012.44 $4,628.21 $11,640.65 $153,256.99
44 $72,929.39 $7,292.94 $4,813.34 $12,106.28 $165,363.27
45 $75,846.57 $7,584.66 $5,005.87 $12,590.53 $177,953.80
46 $78,880.43 $7,888.04 $5,206.11 $13,094.15 $191,047.95
47 $82,035.65 $8,203.57 $5,414.35 $13,617.92 $204,665.87
48 $85,317.08 $8,531.71 $5,630.93 $14,162.63 $218,828.50
49 $88,729.76 $8,872.98 $5,856.16 $14,729.14 $233,557.64
50 $92,278.95 $9,227.89 $6,090.41 $15,318.31 $248,875.95
51 $95,970.11 $9,597.01 $6,334.03 $15,931.04 $264,806.99
52 $99,808.91 $9,980.89 $6,587.39 $16,568.28 $281,375.27
53 $103,801.27 $10,380.13 $6,850.88 $17,231.01 $298,606.28
54 $107,953.32 $10,795.33 $7,124.92 $17,920.25 $316,526.53
55 $112,271.45 $11,227.15 $7,409.92 $18,637.06 $335,163.59
56 $116,762.31 $11,676.23 $7,706.31 $19,382.54 $354,546.13
57 $121,432.80 $12,143.28 $8,014.56 $20,157.85 $374,703.98
58 $126,290.11 $12,629.01 $8,335.15 $20,964.16 $395,668.14
59 $131,341.72 $13,134.17 $8,668.55 $21,802.73 $417,470.86
60 $136,595.39 $13,659.54 $9,015.30 $22,674.83 $440,145.70
61 $142,059.20 $14,205.92 $9,375.91 $23,581.83 $463,727.52
62 $147,741.57 $14,774.16 $9,750.94 $24,525.10 $488,252.62
63 $153,651.23 $15,365.12 $10,140.98 $25,506.10 $513,758.73
64 $159,797.28 $15,979.73 $10,546.62 $26,526.35 $540,285.08
65 $166,189.18 $16,618.92 $10,968.49 $27,587.40 $567,872.48
66 $172,836.74 $17,283.67 $11,407.23 $28,690.90 $596,563.38
67 $179,750.21 $17,975.02 $11,863.51 $29,838.54 $626,401.92
68 $186,940.22 $18,694.02 $12,338.05 $31,032.08 $657,433.99
69 $194,417.83 $19,441.78 $12,831.58 $32,273.36 $689,707.35
70 $202,194.54 $20,219.45 $13,344.84 $33,564.29 $723,271.65


*: Assuming 36,000 as a starting income for a 26 year old, and that a 4 percent increase is gained each year (for inflation or poorly negotiated reviews)
**: Assuming 10% is invested each year.
***: Assuming that the company matches 66% of contributions up to 10% of your income.

If you are able to make 3% consistently off of 750k, you're looking at a sustainable income of about $23,000. Something tells me that in 44 years $23,000 is going to be considered below the poverty level. A dual income would greatly change these numbers, as would a perceivable gain through a 401k program instead of a +/- of 0 each year. Better salary negotiations, higher education, and winning the lottery could also help you out. ; )

[TIM TIM TIM]

haha. Well luckily there should be 2 of us getting contributions, hers are company matched with a max of 4% per pay check.. I plan to be a fire fighter by the age of 22-23 tops. Im hoping there going to give me atleast the same 401k, if not better.