Compound Interest - Working for you or against you?

When it comes to personal finance the way I see it is either compound interest is working for you or against you. I see too many people living off credit never even considering the amount of money they are throwing away. I think this is because compound interest can seem slow at first and the interest seems like almost nothing. But with some discipline and time it will grow exponentially and be very worth the wait.

An example of compound interest working against you is car loans they are a complete money pit. On a high interest car loan you can end up paying an additional 50% - 100% on top of the initial principle in interest and fees. If you set aside the amount you'd be forking out to a car payment every month you'd be able to buy the car out right in a couple years rather than paying for the same car for 3 to 4 years. I found a great website that shows in detail how with a little discipline you can never make a car payment again. http://www.enemyofdebt.com/4-steps-to-never-having-a-car-payment-again/

One way you can make compounding interest work for you is to put away a dedicated percentage of your income in an investment and let its value compound by adding any interest or dividends earned back into the account to let interest build on interest. For this to have the greatest effect never make any withdraws and follow through with your plan until the end. Any early withdraws you make will put a huge dent in your investments ability to grow in the future. On the other hand if you hold your investment long enough and just put the money away and forget about it your investment will grow exponentially.

I know it's not easy but the smart decision financially is to pay off any debts and start investing a percentage of your income as soon as possible and just let it grow. The earlier the better because time is your friend or enemy, depending on if interest is working for you or against you.

-dp1011