I plan to write another column dedicated to introducing some knowledge about financial management and sharing it with you. I can also learn knowledge and everyone can make progress together.
Financial management-something that we can't learn in school, but must be mastered in our lives.
Learning financial management must be clear about the two knowledge points of inflation and compound interest.
Compound interest is the most powerful force in the universe.
Compound interest is also called profit rolling. If the agreed interest is settled once a year, it is based on the year. Compound interest is to add the interest earned in the first year to the principal, and calculate the interest of the second year together as the principal of the second year. If the interest of XX Bank is 12%, you deposit 10,000 yuan in it, and you can get a total of 10,000*(1+0.12)=11200 yuan for principal plus interest in the second year, and you can get principal plus interest in the third year The total interest is 11,200*(1+0.12)=12,544 yuan, and so on.
Maybe the figure of 12% doesn’t give people a lot of intuition. That’s because you only saw the first layer. I will show you the second layer: if you have been deposited in the bank above for 6 years, you will receive even the principal and interest. 10000*(1+0.12)^6=19738.22 yuan, which is equivalent to almost double your original capital. This is a very terrible thing.
You might say that in real life banks will not have such a high annual interest rate. What I said is unrealistic, and I just give a simple example to illustrate the power of compound interest.
Then you must have heard such a story:
In ancient India, the king and the chess player lost in a chess game. The player asked to put a grain of wheat in the first square, two in the second square, and two in the third square. Put four grains, that is, fill the entire chess grid in a compound interest growth method. The king thought that the chess player could get a bag of wheat, but the whole of India's wheat was not enough to pay.
The magic of compound interest lies in its time multiplier effect.
There is a convenient formula for calculating compound interest: 72 formula
The "Rule of 72" is often used to approximate compound interest. It is used to calculate how many years will it take for your investment to double for a given annual return.
For example:
if the annual income is 5%, then 72/5=14.4, which means that the investment can be doubled in about 14.4 years (if calculated by the standard formula, the result is 14.2 years);
if the annual income is 7%, 72/7= 10.3, that is, the investment can be doubled in about 10.3 years (calculated as 10.24 years by the formula);
if the annual income is 10%, 72/10=7.2, that is, the investment can be doubled in about 7.2 years (calculated by the formula as 7.27 Years);
…
If the annual return is x%, the number of years required to double is 72/x. This is the so-called "rule of 72".
In this way, it is easy to calculate that if the annual income is 12%, the number of years it takes to double is 6 years, and it can be tripled in 18 years, which is 8 times; if the income is 15%, it can be quadrupled in 20 years, which is 16 Times. Enough to see the power of compound interest.
Of course, the effect of compound interest is the result of a certain interest rate and a longer time period. It can never be reflected overnight.
Time is also very important! ! !
Buffett once said: "No one wants to get rich slowly." Accumulating wealth requires patience .
I want to say a few more digressions:
Everyone stays away from stocks. Most of the news that you hear about stocks in life is the news of a certain bankruptcy due to the stock market, and then jumping off the building to commit suicide under pressure, or the news that certain shares bought crazy He also made a lot of money. I think we can be afraid of the stock market and not enter the market, but we must understand the basic concepts, because this can increase our financial management knowledge and is very helpful to our financial management and the improvement of family life quality.
Funds and stocks are another big subject. We need to learn and understand, because everyone’s life is inseparable from money. We need to make money work for ourselves better, and to use money better, we must Learn to manage money. Increase your knowledge of financial management in order to be happier.
If you look at the stock market by extending the time horizontally, whether the A-share market in my country has developed for more than 30 years or the stock market in the United States in the past 100 years is characterized by an overall rise, there will be unpredictable fluctuations in a small period of time. All I said that stocks and funds are used for long-term investment, to increase your own assets, not to stimulate you like a roller coaster.
Knowing compound interest and treating it rationally is an important part of personal finance. The motivation of capital is to chase higher compound interest.
At last:
| There are risks in financial management and investment needs to be cautious. |
The above information refers to Yu Ji Kaifan's book Interpretation of Funds, you can read it if you are interested.