Founding Father, Benjamin Franklin described compound interest as, “Money makes money. And the money that makes money, makes money.” Albert Einstein called compounding the “8th Wonder of the World” and “He who understands it, earns it. He who doesn't, pays it.”

We are often told that investing is the way to make our money work harder for us. Compound interest helps us do that because it is the return earned not just on your principal, but also on the gains that the principal accumulates. Compound interest results in exponential payoffs because the returns portion of your portfolio generates more money, again and again.

This is why you need to start saving and investing those savings as early as possible in your life. Time is a very important piece of the success of compound interest so you want to stay invested as long as possible. Investor fees can also impact the level of compounding returns.

Graphic Credit: Ramsey Solutions

You may have also heard of the Rule of 72, which is another way to estimate compound interest. If you divide 72 by your rate of return, you find out how long it will take your money will double in value. For example, if you have $100 that was earning a 4% return, it would grow to $200 in 18 years (72 / 4 = 18)

On the opposite end, this is also why carrying a credit card balance and making the minimum payments has the same effect; the interest compounds off the current balance. It keeps people trapped in a cycle of debt and eventually the balance will balloon so large that many people will be pushed towards declaring bankruptcy. This is why most financial coaches and teachers recommend that you pay for things with cash versus using a credit card. If you have credit card debt, get serious about taking action and paying it off ASAP. Get back on the right side of compound interest and building wealth!

Are you taking advantage of the 8th wonder of the world today?