An economist is someone who didn't have enough personality to become an accountant.

Go to Jokes & Quotes page

Money is like manure. If you spread it around it does a lot of good. But if you pile it up in one place it stinks like hell. - Jr Murchison

Go to Jokes & Quotes page

Compound interest – a train trip

/ Blog / Create a Budget / Compound interest – a train trip
Compound interest – a train trip

Saving with Compound Interest

Compound interest is one of the most often spoken of terms in the finance vocabulary. It can also become complicated when really it’s quite a simple concept. One of the best ways I’ve ever heard it described is by comparing it to a child’s story as written by Noel Whittaker in his book More Money. Rather than re write Noel’s explanation I thought I would shorten it as an extract and have included it below.

The Fairy Godmother and the Magic Train

  (a re-interpreted extract from Noel Whittaker’s book – More Money)

The Fairy Godmother once told a family about a Magic Train that visited a family once a year at their own magic station. The cost of the ticket was $1000 a year or $2.73 per day. All the family had to do was put aside $2.73 per day and every year the good fairy would visit and tell the family the Magic Train had just arrived at another station.

Every time the train visited a station it would load a carriage full of money, including some extra (interest).

Last station – hooray!!

This went on for 37 stations (37 years) until the Fairy Godmother said the money in the carriages was now worth over ONE MILLION DOLLARS and you now no longer have to pay for a ticket on the Magic Train. The ride is now free for the rest of your life.

The engine of this Magic train has a name painted on the side – The Magic of Compound Interest.

See 40 station timetable below.

Screen Shot 2014-06-05 at 3.04.35 pm

As you can see from the table, once you pass the 37th station, the train and savings increase at a fantastic rate. By 40 years the savings have increased to $1,524,299!!

I’ll include the Savings Calculator at the bottom of this post so you can play around with some other amounts and time frames.

To arrive at roughly the same result as the table, use the calculator and add $83.33 per month savings, 37 years duration and 14% interest rate.

Bingo! It’s quite simple but amazing the result of saving only $2.73 per day for 37 years. Great for saving for children!

See you next time.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Get free updates
If you like this - please join us

12 Comments
  1. Thank you for all your valuable labor on this blog. My daughter really likes engaging in research and it’s really obvious why. Most people learn all about the compelling ways you create insightful steps through the website and as well as cause contribution from people on this idea then my princess is without a doubt starting to learn a lot. Have fun with the remaining portion of the year. Your performing a good job.

    10 Oct, 2016
  2. I wanted to post you this bit of remark to be able to thank you very much as before for your amazing concepts you’ve documented on this site. It’s simply unbelievably open-handed with you to convey openly all that a number of us could possibly have distributed as an e book to end up making some bucks on their own, specifically seeing that you might have done it in case you wanted. These pointers also worked like the easy way to fully grasp other people have a similar dreams the same as my own to understand way more on the subject of this matter. I know there are a lot more pleasant moments up front for people who scan through your website.

    10 Oct, 2016
  3. Unquestionably believe that which you said. Your favorite justification seemed to be on the web the easiest thing to be aware of. I say to you, I certainly get irked while people consider worries that they just do not know about. You managed to hit the nail upon the top and defined out the whole thing without having side effect , people can take a signal. Will likely be back to get more. Thanks

    10 Oct, 2016
  4. I have been exploring for a little for any high quality articles or weblog posts in this sort of area . Exploring in Yahoo I eventually stumbled upon this website. Studying this information So i¡¦m happy to express that I’ve a very just right uncanny feeling I found out just what I needed. I such a lot definitely will make sure to do not overlook this website and give it a look regularly.

    10 Oct, 2016
  5. Great amazing things here. I am very satisfied to peer your post. Thank you so much and i am having a look forward to touch you. Will you please drop me a e-mail?

    10 Oct, 2016
  6. I do trust all the concepts you’ve introduced to your post. They are very convincing and will certainly work. Still, the posts are very quick for beginners. Could you please lengthen them a bit from next time? Thanks for the post.

    10 Oct, 2016
  7. Its like you read my mind! You seem to know so much about this, like you wrote the book in it or something. I think that you could do with a few pics to drive the message home a little bit, but other than that, this is excellent blog. A great read. I’ll definitely be back.

    10 Oct, 2016
  8. We are a group of volunteers and starting a new scheme in our community. Your site offered us with valuable information to work on. You’ve done a formidable job and our whole community will be grateful to you.

    10 Oct, 2016
  9. Hey there, You have done a great job. I will definitely digg it and personally suggest to my friends. I am sure they will be benefited from this site.

    10 Oct, 2016
  10. Wow, wonderful weblog layout! How long have you ever been blogging for? you made blogging look easy. The total glance of your web site is magnificent, let alone the content material!

    10 Oct, 2016
  11. Nice post. I was checking constantly this blog and I’m impressed! Extremely useful info particularly the last part 🙂 I care for such information much. I was seeking this certain information for a long time. Thank you and good luck.

    10 Oct, 2016
  12. I enjoy you because of each of your efforts on this web site. Betty really likes going through investigations and it is easy to see why. Most of us learn all of the lively mode you present powerful things via your web blog and therefore inspire contribution from website visitors on this subject matter so my girl is certainly starting to learn a lot of things. Have fun with the rest of the year. You’re carrying out a pretty cool job.

    10 Oct, 2016

Add comment