Compound interest

Training 285 minutescompound interest

You are 25, work as a graphic designer and have $200 a month to spare. Your sister says: "Start at 35, when you earn more." Let's see what that pause costs.

Training goal: Let interest earn interest

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Situation

1. You already have a 3-month cushion and no costly debt. Start now or in 10 years? Assume 7% a year on average.

Wait until 35, as your sister suggests
Start with $200 a month today
Save in checking at 0%

2. The bank asks: pay interest to your card, or add it to the balance?

Add it to the balance, compounding
To the card, nice to see the income
Let the bank decide

3. Year three. The market drops 15%, your account is down. Coworkers are selling. Your job is steady and the cushion is intact.

Sell everything and wait it out
Pause contributions for a year
Keep contributing as planned

4. A bank advisor pitches a fund charging 1% a year. An index fund charges 0.1%.

The advisor's fund, they are the expert
The low-fee fund
Put the decision off for six months

5. After 5 years the account holds $14,000. A friend is selling a car for $12,000. Work is 20 minutes away by metro.

Leave the account, save for a car separately
Withdraw and buy the car
Take half, leave the rest

What you will learn

Time is the main multiplier: starting 10 years earlier can double the result.
Choose compounding: interest on interest.
Fees compound too, pick low ones.

Your real-life step

Use an online compound interest calculator to see what $100 a month grows to in 30 years at 6%.

Questions and answers

What is compound interest in simple terms?

It is interest paid on both your original money and on interest already earned. The balance grows faster and faster over time.

What is the compound interest formula?

Final = principal × (1 + rate)^years. For example, $1,000 at 10% for 10 years: 1,000 × 1.1^10 ≈ $2,594.

What is the difference between simple and compound interest?

Simple interest is paid only on the original amount, compound also on earned interest. Over long periods the gap is huge.

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Numbers are illustrative. A game, not financial advice.