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It is highly unlikely that Albert Einstein ever said anything about compound interest although he allegedly quoted as saying

“The most powerful force in the universe is compound interest’ or “It is the greatest mathematical discovery of all time”.

Now whether he said any of those quotes or not it does still stand that compound interest is incredibly powerful and if used correctly could seriously reduce your debt. It does need to factor in any personal finance plans that you have.

The first thing to realise is that compound interest in itself it not good or bad. If it’s working for you then it can be good but if it’s working against you then it can be bad – very bad.

Compound interest could actually be the solution for your children or grandchildren’s pension problems. If 10,000 dollars was put in a savings account at 3% (which is a low interest rate even nowadays) when a child was born then in 60 years that 10,000 dollars would be worth 58,916 dollars. If that’s not too impressive see what happens when the interest rate is increased to 6% - that original 10,000 dollars is now worth 329,877 dollars. You can check the figures at http://www.fido.gov.au/.

Robert G Allen has spoken about that if you could a dollar away every day for 58 years at 10% interest then you would become a millionaire. That may be the slow way, and 10% may be a little more difficult to achieve by simply putting your money in a bank but it can be done. If you want to play around with those figures and interest rates, a free spreadsheet sheet calculator is available at http://www.money-magnets.net/power-of-compound-interest/ and you can change the daily amount saved and the interest rates and compare the differences. When I first looked at this some years ago, I couldn’t believe it. Compound interest accumulates very quickly and makes a big difference to your personal finance situation.

I mentioned that compound interest could work against you too, and that can be seen very easily with credit cards. According to Forbes (http://www.forbes.com/) the average credit card debt in America is nearly 10,000 dollars per household. More people are not paying off their credit card debt monthly and that’s when compound interest works against them. If you had 2,500 dollars on a credit card at an interest rate of 10% (and a lot of cards are much higher than that) then after 1 year that debt would be 2,750 dollars. After 5 years that debt has become about 16,800 dollars – yes and all you originally paid out was 2,500 dollars. Those figures are assuming no payments – so you were leaving that amount on your credit card every time.

It’s actually scary how the debt on credit cards can mount up especially when interest rates are going up. Some people are happy at the moment since interest rates are low but that will not last forever. When you are looking at your personal finance remember to see if you can either pay off more of your credit card debt, or whether you can reduce your interest. While interest rates are lower try to pay off the same amount (even though the interest is lower) so that you are reducing the capital amount.

Be prepared that interest rates will go back up so you want compound interest working for you rather than against you.

I know that title may sound strange but there is some sense in there – honestly! People tend to take personal finance very personally, to the extent that they won’t even ask for help if they have any issues.

Money is still a taboo subject in some families and even close friends don’t always talk about it. But we’re not taught personal finance in schools so why do we seem to assume that we’ll be great at it? Some of us may be taught personal finance at home but those ideas may be out dated or very basic. I certainly wasn’t taught about property investment or share option trading from my family or friends. Once I found out that there were easier ways of making money other than a 9 -5 job that I didn’t enjoy, I had to find out the rest for myself. I’ve read books, attended seminars, taught seminars and put it into practice.

Why did I do all this? Because I was (and still am) determined not to rely on the state for my future income. There is a pension time bomb waiting to go off, where there will be too many people claiming pensions in relation to the number of people working.  People have been writing about the pension time bomb for years but governments are doing very little. At the moment most governments are focussed on beating the recession as quickly as possible and not on pensions.  So if the governments aren’t doing anything then you need to be responsible for your personal finances so that in a down turn you won’t be too badly affected.

If you know people who are financially secure and you feel comfortable talking to them about personal finance then ask them what they do. They may be willing to share information about how they became to be secure financially.  If you don’t feel comfortable talking to people that you know then there are other solutions such as personal finance books, courses, teleseminars and even personal coaching. I learnt a lot from books and seminars but I really started to learn when I was around like minded people and started to put what I had learnt into practice. Be prepared that you may (almost certainly) make some mistakes but that’s okay. Yes it is okay to make mistakes it really is the way we learn. What you can do is minimise your risk so that any financial mistakes you make will be small ones. When it comes to share trading most online share platforms have virtual trading systems where you can practice.  I used virtual trading for months before I actually placed a live trade. I also used spreadsheets to make sure that I knew what I was placing and what my profits could be, before placing the trade.  

Remember that in personal finance it’s good to be committed but not attached. This means that you are committed to taking responsibility for your personal finances, but not so attached that it keeps you from taking necessary steps. When we become attached we can often let fear get in the way of what we want to do.

So don’t take personal finance too personally, simply decide what you want and then find out how you get there. 

We know that this seems slightly off topic for a personal finance site but stay with us on this and we’ll explain.

Last Saturday morning we were off to a Rotary function. I was driving with Adrian as a passenger and my parents in the back seats. It was a hire car and I looked at the dash to increase the airflow since my passenger window had started to steam up. The car wandered slightly on to the dirt on the side of the road and I straightened the car, but then the back end fish tailed out and I hit the brakes. The car went into a spin and crashed into some trees, rolling onto the driver’s side. I screamed “No!” as I saw what was about to happen.

Miraculously (and I don’t use that word often) we were all okay. I had visions of killing my entire family just before we hit the trees. The trees were actually what saved us. They were strong enough to stop us from rolling down a steep embankment, but not too big to puncture the windows and injure us. I called the police and ambulance with my mobile (cell) phone.

A couple in a passing car and the Police helped us out, with the Ambulance officers checking that we were okay. We also had the State Emergency Services and the Country Fire Service attend the accident.

To everyone that helped us THANK YOU.

We are all okay except for a few bruises and a broken thumb nail. For the rest of the day I kept asking Adrian if it was true that we all got out alive. The Police told us (and I have been back to the crash site myself) that if I had rolled the car anywhere else then the result would have been very different due to the steep embankments.

Now almost dying – trust me this was genuine fear that I had injured or killed my entire family, tends to focus the mind. It sorts out what is and isn’t important.

I know that there will be some BIG changes taking place, although I don’t know what they all are yet.

I feel that I have been given a second chance….

When I was asking Adrian if we had died what regrets would he have and he answered “None”. I thought about the question and my answer would have been the same (apart from the accident - I feel that I have more to do here).

You see I tell those that mean most to me how much I love them (even more so during the last couple of days), and I have a business that I love. I love to teach and connect with people, whether it’s through the internet, phone, through speaking engagements or one to one.

Now the majority of people won’t have this simple a wake-up call. Most people are still waiting for the mythical “Someday”. Well we want to share our good luck with everyone.

You see life goes by so quickly – ask anyone over 45 and they will tell you this. The only place you can start to live the life that you want is right now, where you are with what you have. You can start now and to help you along, and to share our luck with everyone we have reduced the price of our Successful Personal Finance course by 40% for subscribers to our website.

This is not a sales gimmick. We are genuinely grateful to be alive and we want to share our gratitude.

So I will leave you with the question of the title - what regrets would you have if you died tomorrow? If not living your life fully and passionately is on the list then it’s time to for a change.