Money Smarts Quiz Answer (7c)
c. interest on her savings will start compounding
When you leave the interest in your account or reinvest the money you earn on your investments, the money you earn starts to earn money too. Over time, the magic of compounding works, allowing your money to grow with dramatic results. The more time you have to save, the less money you need to save because of compounding. And the longer you wait to start saving, the more you have to spend to reach your goal. For example, let's assume that Maria's savings grow by 5% a year. If she starts to save $243 a month now, it will cost her $58,320 to have $100,000 in twenty years. If she waits 10 years to start saving, she will have to save $644 a month for 10 years, and it will cost her $77,280 to reach $100,000 in twenty years.
Question 7, Answer c