Compound interest is extremely fascinating to us. It can either work for you or against you. Let’s do an example. Did you know that your credit card has compound interest? Assume you have a credit card and you spend $1,000. Then the bank charges you interest of 5%. Which means now you owe $1,050. Then next month you still don’t pay it off and they charge you another 5%. Does that bring it to $1,100? Answer is no. Because it’s 5% plus the debt they added the previous month. Which brings the total to $1,102.5. So a little bit got added. Over months and years this can grow out of control. The mistake most people make is that they pay the interest component but not the underlying loan. Which means, by design, they never pay off their debt. The banks do this on purpose to keep you “on their payroll” forever!! 

Understanding this explains why most people end up in serious credit card debt. Conversely, it also explains why people smart with their money are able to grow large fortunes with considerably low paying jobs. It works the same way. A little bit invested now growing at 5% over many years will grow to a large fortune given enough time.