## Compound interest Money you have already earned starts earning too, so each year adds a little more than the year before. --- ## The numbers **Assumptions:** starting amount €1,000 · contribution €50 per month, so €600 per year · illustrative rate of 3% per year · interest calculated once a year on the balance you started that year with · horizon 10 years. | Year | Paid in so far | Interest added that year | Balance at year end | |---|---|---|---| | 1 | €1,600 | €30.00 | €1,630.00 | | 2 | €2,200 | €48.90 | €2,278.90 | | 3 | €2,800 | €68.37 | €2,947.27 | | 4 | €3,400 | €88.42 | €3,635.69 | | 5 | €4,000 | €109.07 | €4,344.76 | | 6 | €4,600 | €130.34 | €5,075.10 | | 7 | €5,200 | €152.25 | €5,827.35 | | 8 | €5,800 | €174.82 | €6,602.17 | | 9 | €6,400 | €198.07 | €7,400.24 | | 10 | €7,000 | €222.01 | €8,222.25 | Look at the third column. You paid in exactly €50 a month the whole time, yet the interest in year 10 is €222.01 against €30.00 in year 1. Nothing about your effort changed. The only thing that grew was the balance the rate was applied to. --- ## What people get wrong **The belief:** *"Fifty euros a month is too small to be worth it. I'll start properly when I earn more."* **The correction:** Small amounts are what the arithmetic is built from. Of the €8,222.25 at year 10, you paid in €7,000 and the remaining €1,222.25 came from interest on money you had already set aside. That €1,222.25 exists because there was a balance sitting there each year for the rate to work on. --- ## One thing to do this month **Find your real number.** Open your last three bank statements, add up what actually left your account each month, and subtract that from what came in. Write the leftover figure down. That single number, not a guess, is what you have to work with.