The Magic of Compound Interest: Why Starting Small Can Make You Wealthy

Ryan Arisumi
Apr 21
2 min read

When it comes to building wealth, most people think you need a big salary or a lucky break. But the real secret? It’s not about how much you earn—it’s about how early and consistently you save, and how you let your money work for you. Today, let’s explore the difference between compound interest and simple interest, and discover the powerful “Rule of 72” that can change your financial future.

Simple Interest vs. Compound Interest: What’s the Difference?

Simple interest is, well, simple. You earn interest only on your original deposit. For example, if you put $1,000 in a savings account with a 5% simple interest rate, you’ll earn $50 every year—no more, no less.

Compound interest, on the other hand, is where the magic happens. Here, you earn interest not just on your original deposit, but also on the interest that accumulates. It’s like a snowball rolling downhill, getting bigger and bigger as it goes.

Example: The Power of Compounding

Let’s say you invest $1,000 at a 5% annual interest rate:

Simple Interest (after 10 years):$1,000 + ($1,000 x 0.05 x 10) = $1,500
Compound Interest (after 10 years):$1,000 x (1.05)^10 ≈ $1,629

That’s an extra $129 just for letting your money “compound”—and the gap only grows over time!

The Rule of 72: How Fast Can Your Money Double?

Want a quick way to estimate how long it will take for your money to double? Enter the Rule of 72. Just divide 72 by your annual interest rate.

Example:At a 7.2% interest rate: 72 ÷ 7.2 = 10 years to double your money.

This simple rule shows why starting early is so powerful. The more time your money has to grow, the more doubling cycles you’ll enjoy.

Start Small, Start Now: Every Dollar Counts

You might be thinking, “But I don’t have much to save.” Here’s the truth: It’s not about the amount—it’s about the habit. Thanks to compounding, even small, regular savings can grow into something significant over time.