In my second personal finance and investing video, I discuss the good and the bad of compounding and inflation effects on your wealth and debt. Credit card debt kills as it prevents the average American consumer from getting ahead, especially if they keep a revolving balance owed and allow interest rate charges (annual percentage rate or APR) to accrue over time. (Pro Tip: Call your credit card company to ask to lower your APR! They more than likely will be willing to work with you because they want to keep you as a customer!)
Instead of allowing a 17% APR to keep us in never ending credit card debt, we should strive to compound our investments like Warren Buffett did. Make compounding work for you and not against you!
I use burgers as an example to represent inflation trends and the purchasing power of money. We look at The Economist’s Big Mac Index (a version of the Consumer Price Index (CPI) focused on one food group) where we evaluate the purchasing power of US dollars for a burger compared to other countries and adjusted for currency exchange rates.
By using spreadsheets we can graph inflation trends and figure out potential investment projections if we can manage to grow our investments at a significant compounded annual growth rate (CAGR) over many years. I demonstrate calculations of how an investment can go from $1600 to $1 million in 30 years! And what sadly happens to that same $1600 if it doesn’t grow over 30 years.
I’m excited to be on a path to FIRE (Financial Independence, Retire Early), and I look forward to making more investor friends.
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