How interest works for you or against you.
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I know you already know what interest is, but maybe this article can clarify some things and you can use interest to your benefit.
Fixed Interest & Variable Interest
Fixed interest is an interest that does not change based on the market. If you are buying a house and it is a fixed rate, your payment will not change if the market rate goes up. On the contrary Variable Interest is interest that can change based on the market. In my opinion, most people trying to sell you a loan would mention fixed rate and do not mention variable rate. Why would you? “Hey your interest could go up in the next couple years with this loan” or “Hey this is what you are going to pay in interest for your loan.”
The best interest when paying off a loan is no interest of course. If you are buying a house though it is something to pay attention too.
Compound Interest
Almost any attention span can handle this one-minute video below. No, I did not make it credit goes to One Minute Economics.
This is a very simple thing to learn yet many do not practice. You are going to lose money and make money in investing, but the fact that you are doing it and learning will put you ahead of the game. Any losses taken are simply lessons about what moves to make and when to make them. If you consistently put a small amount away into the right areas, it turns into a big amount; that simple.
- Trading account (TDAMERITRADE, ROBINHOOD) – Risky but if you do your research you can come out on top
- 401K OR INDEX FUND – If you look at the market over the past 18 years it has tripled. Setting an auto deposit into one of these will have you compounding interest in no time.
