Compounding
Compounding means adding more and more of something to make it grow bigger and bigger. Imagine you have a piggy bank with some money in it. If you add more money to it regularly, like every week or every month, you will have more and more money in your piggy bank over time. This is compounding.
When you put money into a savings account or an investment, it can grow in the same way. The interest or returns you earn on your money can be reinvested or added back to your original amount, so that over time, your money grows even faster.
Let's say you put $100 into a savings account that gives you 5% interest per year. After one year, you would earn $5 in interest, making your total amount $105. If you leave that $105 in the account, the following year you would earn interest not just on the original $100, but on the $5 interest you earned as well, making your total $110.25.
As you can see, the more time your money spends compounding, the bigger it can grow. This is why it's important to start saving or investing early and consistently, to give your money as much time as possible to compound and grow.
When you put money into a savings account or an investment, it can grow in the same way. The interest or returns you earn on your money can be reinvested or added back to your original amount, so that over time, your money grows even faster.
Let's say you put $100 into a savings account that gives you 5% interest per year. After one year, you would earn $5 in interest, making your total amount $105. If you leave that $105 in the account, the following year you would earn interest not just on the original $100, but on the $5 interest you earned as well, making your total $110.25.
As you can see, the more time your money spends compounding, the bigger it can grow. This is why it's important to start saving or investing early and consistently, to give your money as much time as possible to compound and grow.
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