Compounding Interest...

How It Leads to Financial Bleeding In Your Life

NOTE: This article on compounding interest features excerpts out of the book, The Lavish Cheapskate. To see how profoundly compounding interest can impact your finances, we recommend this book. Click here and it will take you directly to the Amazon page where you can order. You can also read more excerpts from the Amazon "read inside" query.

This book shows, in real numbers, how powerfully compounding numbers work in your personal finances and keeps it very simple.

It compares "case scenarios" of two people coming from the same exact background with the same exact income and how one small shift can add up to several thousands (and hundreds of thousands) of dollars of difference.

Financial Bleeding is very similar to internal bleeding. In our society today, most of the money that is bleeding out of our finances is unseen.

And just like internal bleeding, it can't be seen and is often ignored until it's too late and results in financial disaster (or worse).

Interest compounding against you is just one of many ways that you can bleed internally financially.

Let's take one of the case-scenario comparisons and end results from the book, "The Lavish Cheapskate..." on page 68, there is a Case-Scenario Comparison between a woman named Gerri, and a woman named Samantha.

Both of them come from the same financial background and same personal background. They both have $338 to spare each month. Gerri chooses to incur debt (using credit cards), while Samantha chooses to use that spare $338 a month to start a Paycheck Extension Account (from page 34) to extend how long she can live without a paycheck. She continues to build her liberation and leverage it to her favor.

The ultimate difference is more than $215,000.00 (without including Samantha's 401K).

Where did Samantha find this freed-up money? She didn't have to work harder, or find any type of "extra job" to do it, she simply found the savings by shopping for groceries differently than Gerri. It was that simple of a shift.

Gerri, having credit card debt, had interest compounding against her. What Gerri failed to see is the interest rate accumulated a big "bleed" in her financial circulation system.

Gerri had a balance of $10,000.00 on a credit card at a rate of 27%. Gerri only paid $3,000 a year toward that debt (which is a big chunk of change), yet only $300 of it was applied to the debt. The other $2,700.00 went straight out to interest!*

In other words, Gerri threw away $2,700.00 that first year on interest (which goes straight to the creditor and not toward Gerri's debt). That is a complete hemorrhage in Gerri's financial circulation system.

*-Based on 2.5% minimum monthly payment.

Samantha, on the other hand, took that extra $338 a month and built her paycheck extension account. She has no money compounding against her. She does, however, have money compounding in her favor-- in other words, her money has grown without her having to do anything but put it into an interest-bearing account.

Most people will choose to have compounding interest working against them, rather than in their favor... especially during the recession.

Since interest in money-market accounts, as well as cash-management accounts, have dropped significantly, people justify not doing this.

But here's where the HUGE mistake is-- there is no money working for those who incur debt-- it is rapidly working against them. Yet, for those who choose to start one, despite the lower interest rates of todays market, they have that interest working for them (with no extra work) and they are several percentage points ahead of those who do have debt!

There are many other ways money can bleed out of your account ( which we will address in the future) but compounding interst is one of the most rapid ways we can suffer from internal bleeding.

Keep it simple. Get started today.

Once again, this book further explores

compounding interest with case scenarios like this one. It is called "The Lavish Cheapskate." And you can get it by clicking here.

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