Remember back in school when you learned about interest and multiplying different rates? For far too many people it was the last time compounding interest rates were considered. But by not realizing the earning potential of interest, you could be losing out.

As an example, let’s look at a goal to be financially independent in the next 25 years and calculate the amount of wealth needed to accomplish that using the Wealth Building Formula®: Investable Cash X Time Goal X % of Return = Return.

We know there is going to be an amount a person must save each year at an assumed rate of return to reach that goal. The key is to grow your wealth in a compounding, non-linear way, what we call geometric compounding.

Compounding is akin to bacteria in a Petri dish – the colony starts out slow, one cell becomes two, then four, and so on, but then the doubling really takes off. Compounding works in a similar, predictable way. Because compounding starts off slowly and only gains a lot of steam way down the line, it can discourage some from saving or making proper financial choices. What do I mean by that? Patience is the name of the game, and the key to harnessing the power of compounding interest is to save now rather than later. While compounding occurs from when you first begin to save, the real power of compounding occurs in the later stage of your wealth building. You won’t see the benefits of savings until later down the road. If you diligently save according to your plan annually, you will reach geometric compounding about two-thirds of the way through the time frame of your financial plan, meaning the first two-thirds of your time will amass one-third of your monetary goal, and in the last one-third of your time you will amass two-thirds of your monetary goal.

Find more information on compounding in Master Your Cash Flow® and by visiting tswealth.com.