The Effect Of Compound Interest Can Greatly Boost Your Returns

The Effect Of Compound Interest Can Greatly Boost Your Returns

I started this website a few years ago after being made redundant from my regular job.  I left my employment with mixed feelings.  On one hand, I felt I was stuck in a rut and I’d had enough of working for managers who I didn’t feel were fit for purpose.  On the other hand, it provided me with a secure and decent regular salary.  Redundancy can be a scary time but it can also be a blessing in disguise if handled wisely.

My plan was to take a few weeks off to recoup and consider my next steps.  I was prepared to retrain once I’d decided which direction I wanted to go in.  I was already quite tech-savvy as I’m a bit of a gamer.  I have a Windows computer and am familiar with Microsoft Office so thought that would give me a good headstart when looking for my next job.

The Effect Of Compound Interest Can Greatly Boost Your Returns

It’s fair to say things didn’t go quite as I had anticipated.  I did a few training courses but felt uninspired at the end of them and although I secured a few job interviews nothing came of them.  This is when I started on my journey of researching and trying out various side hustles, such as matched betting.  This later became the inspiration for starting this site by documenting my experiences in finding different ways to make money.  The site in itself just started as another side hustle which I’ve managed to develop and monetise.

When you don’t have a regular income it really makes you focus on what cash you do have.  You don’t want to waste a penny and you need to make your money work hard to get the best returns possible from any investments.  So I needed to develop a strategy on how to best achieve this.

I read a lot about different forms of investments from many different sources.  I learned all about the principles of risk and reward.  As much as I would have preferred the excitement of investing in shares and funds, I knew I would have to mainly focus on options that were of lower risk.  I also needed a way to work out the kind of returns I could expect to receive from the various investment options, to make a proper assessment of their value.  I, therefore, needed to get my head around compound interest, its effect on returns and how to calculate it.  As well as investments, compound interest is typically applied to loans so it’s likely to affect all of us at some point during our financial journey.  The effect of compound interest can greatly boost your returns so let’s investigate further.

In simple terms, compound interest is the interest you earn on interest, with investments this is typically added annually and can make a huge difference over time to what you get back.

To give me the required figures, I used a compound interest calculator and played around with the parameters, such as initial lump sum, monthly payments, interest rates, term of investment and so on.  This information allowed me to make an informed decision about which options best suited my aims.  I could even add a figure to take into consideration the effects of inflation on what I would get back at the end of the term.

My initial plan was to invest some of my redundancy money as a lump sum and then make regular monthly payments perhaps somewhere between 2 to 5 years.  I also wanted to consider other investments over a longer term.  Ideally, I was looking for the surety of a fixed interest rate so I could as accurately as possible calculate my returns.  The compound interest calculator was able to give me all the necessary information I needed and offered a printable forecast.

Below is an example printout of investing £1000 plus £100 monthly savings over 2 years while estimating the other parameters:

The Effect Of Compound Interest Can Greatly Boost Your Returns

This site even has a calculator that allows you to set a target return and then work out how much and for how long it would take to achieve it with the help of compound interest, plus a few other savings calculators.

My earning capacity had become uncertain in the short term and possibly longer.  Therefore it was crucial I took control of the money I did have and maximised the returns from it.

In the end, I made three fixed-term bond investments over different terms.  These proved invaluable and allowed me to plan my finances ahead with some confidence.  I also put some money in an easy-access account to use for day-to-day living, emergencies and perhaps the occasional treat.

In time, the website started to earn some money and I was able to expand and create other websites as a result.  Blogging is now my main source of income but I wouldn’t have had the time to build a new career without sensible financial planning.  Understanding the effect and having the ability to calculate compound interest played a large part in that process.








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