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Simple Math

May 17, 2008 · 5 Comments

The story I wanna share today is called The John & Mary Example.

John was a single guy, and because he was single he could afford to save $1000 every year. Mary on the other hand, was cash-strapped because she didn’t have a boyfriend, and she had to pay for all her meals and movie tickets and stuff. (HAHA!) Therefore Mary couldn’t save a single cent when she was younger.

This went on for 5 years, John managed to save $1000 a year and Mary saving nothing.

Then one beautiful summer afternoon, John met Mary and they started dating. They were 25 years old. John was a gentleman, and he paid for all their dates. Subsequently, John couldn’t save a single cent, and Mary managed to save 1000 bucks a year.

10 years later, John proposed to Mary and they got married. They took a peek into their accounts to see what they could afford for their honeymoon.

Remember: John saved a total of $5000. Mary put in a total of $9000. Assume they managed to achieve 10% returns on their money every year.

Guess who had more money?

The John & Mary Example

Link: Cashflow Working

Amazing isn’t it? :)

John was richer than Mary despite putting aside far less money. This is the beauty of compound interest. It’s simple math that reminds us of the power that compound interest has on our money.

All we need is savings and time. The more we save, and the earlier we start doing so, the bigger our money will grow.

Categories: Finance