Have you ever looked at a compounding chart?  I was fortunate enough to be handed a compounding chart when I was 20 years old by a stock broker at Dean Witter.  It really opened my eyes.  Below is a compounding chart that I made for my youngest child when he was 9 years old.

Dilligent saving and smart investing could make you money in your sleep!

I made a pact with all 4 of my kids that I would put $1,000 in an account for them if they promised to save their own money in that account every year.  This exercise was for two reasons.  I wanted my kids to become familiar with the magic of compounding and the habit of saving.  When combined together, especially at an early age, it can become a magic formula against living a life of struggle and allows them to build and create wealth for the rest of their lives.

So my youngest child, Dexter, had to contribute $300 his first year at 9 years old and I contributed $1,000 to his account.  Then each year thereafter, we agreed upon a new amount for Dexter to save that increased with his age.  I would then fictitiously invest that money into our real estate investment company and allow them to build their equity over time.

They have loved seeing their statements each month with their return.  Their money is making money while they sleep.  What I really wanted them to see with their own eyes was the magic of compounding their own money over time.

You can see in the chart below that if Dexter continues this saving habit, he will end up saving $561,000 of his own money over a 57 year period.  If he collects an average of a 5% return on his investments, he will have $1,323,235.  Not bad considering he made $762,000 dollars in his sleep.

If he can double the rate of return to 10%, it is an astounding $4,963,313.  Now we are talking some serious compounding, and he made $4,402,000 in his sleep.   Makes me want to take extra naps!

 

 

Dexter Hughes Beginning Balance Investment Rate 1 Investment Rate 2
$1,300 5.00% 10.00%
Current Current Annual Annual End of Year End of Year
Age Year Contribution Withdrawals Balance w/Rate 1 Balance w/Rate 2
9 2008 $300 $0 $1,665 $1,730
10 2009 $300 $0 $2,063 $2,233
11 2010 $300 $0 $2,481 $2,786
12 2011 $300 $0 $2,920 $3,395
13 2012 $300 $0 $3,382 $4,064
14 2013 $600 $0 $4,181 $5,131
15 2014 $900 $0 $5,335 $6,634
16 2015 $1,200 $0 $6,861 $8,617
17 2016 $1,200 $0 $8,464 $10,799
18 2017 $1,200 $0 $10,148 $13,199
19 2018 $1,200 $0 $11,915 $15,839
20 2019 $1,200 $0 $13,771 $18,743
21 2020 $2,400 $0 $16,979 $23,257
22 2021 $2,400 $0 $20,348 $28,223
23 2022 $2,400 $0 $23,886 $33,685
24 2023 $2,400 $0 $27,600 $39,694
25 2024 $2,400 $0 $31,500 $46,303
26 2025 $2,400 $0 $35,595 $53,573
27 2026 $2,400 $0 $39,895 $61,571
28 2027 $2,400 $0 $44,409 $70,368
29 2028 $2,400 $0 $49,150 $80,044
30 2029 $2,400 $0 $54,127 $90,689
31 2030 $4,800 $0 $61,874 $105,038
32 2031 $4,800 $0 $70,007 $120,821
33 2032 $4,800 $0 $78,548 $138,184
34 2033 $4,800 $0 $87,515 $157,282
35 2034 $4,800 $0 $96,931 $178,290
36 2035 $4,800 $0 $106,818 $201,399
37 2036 $4,800 $0 $117,198 $226,819
38 2037 $4,800 $0 $128,098 $254,781
39 2038 $4,800 $0 $139,543 $285,539
40 2039 $4,800 $0 $151,560 $319,373
41 2040 $9,600 $0 $169,218 $361,870
42 2041 $9,600 $0 $187,759 $408,617
43 2042 $9,600 $0 $207,227 $460,039
44 2043 $9,600 $0 $227,669 $516,603
45 2044 $9,600 $0 $249,132 $578,823
46 2045 $9,600 $0 $271,669 $647,265
47 2046 $9,600 $0 $295,332 $722,552
48 2047 $9,600 $0 $320,179 $805,367
49 2048 $9,600 $0 $346,268 $896,464
50 2049 $9,600 $0 $373,661 $996,670
51 2050 $19,200 $0 $412,504 $1,117,457
52 2051 $19,200 $0 $453,289 $1,250,323
53 2052 $19,200 $0 $496,114 $1,396,475
54 2053 $19,200 $0 $541,080 $1,557,243
55 2054 $19,200 $0 $588,294 $1,734,087
56 2055 $19,200 $0 $637,868 $1,928,616
57 2056 $19,200 $0 $689,922 $2,142,597
58 2057 $19,200 $0 $744,578 $2,377,977
59 2058 $19,200 $0 $801,967 $2,636,894
60 2059 $19,200 $0 $862,225 $2,921,704
61 2060 $38,400 $0 $945,656 $3,256,114
62 2061 $38,400 $0 $1,033,259 $3,623,966
63 2062 $38,400 $0 $1,125,242 $4,028,602
64 2063 $38,400 $0 $1,221,824 $4,473,703
65 2064 $38,400 $0 $1,323,235 $4,963,313