Think of compounding as money babies. When you save or invest, you earn interest or dividends on your money. When you put the interest of dividends back into your account, the next time you earn income, you’ll earn on the money you originally put in, as well as the money you earned from that money. Compounding is the easiest way to create wealth, because money you already worked for keeps earning you more money.

You can learn more about the benefit of compounding in these posts:

Cash Club: Compounding vs inflation

OUTstanding money: Getting rich takes time, not money

Related terms in this Glossary:

interest