How Compound Interest Works

$5,000 growing at 7% for 20 years with $500/month reaches about $280,000 — more than double the $125,000 contributed, with compounding doing the heavy lifting. Inflation at 3% trims the real purchasing power to roughly $155,000 in today's dollars.

The Eighth Wonder

Compounding rewards time more than amount: the same $500/month for 40 years at 7% produces about $1.3M, roughly five times the 20-year result — even though you only doubled your contributions. Starting early is the single most powerful lever in personal finance, because the last decade of growth dwarfs the first.

Nominal vs. Real

Always compare goals in real (inflation-adjusted) dollars. A $280,000 nominal balance in 2044 buys what $155,000 buys today at 3% inflation. Planning with the real number prevents the classic error of hitting your nominal target and discovering it funds far less than expected.