When is the best time to invest? Is it when you have sufficient income and savings that you feel that you have a surplus to invest with?

The correct answer is much simpler: yesterday, with the second best time being today. Because of the magic of compound interest, **investing early is the best strategy possible**.

Thanks to a simple mathematic rule, compound interest rewards early, small investments more than late, large investments.

The way compound interest works is that after a given time interval (e.g. year), interest (as a percentage of the original investment) is paid out. The next year, interest is paid out again but as a percentage of the new amount. As an example:

1000 x 1.08 = 1080 (end of year 1)

1080 x 1.08 = 1166.40 (end of year 2)

1166.40 x 1.08 = 1259.71 (end of year 3)

…until end of year 10

If we use mathematical shortcuts and convert this into a formula, we can express it as:

(A = future value, P = present value, r = interest rate as decimal, n = number of periods/years)

For example, if we invest $1000 (PV) at an interest rate of 5% (r=0.05) for 10 years, then:

$1000 x 1.08^10 = $2158.92,

meaning we have earned $1158.92 over 10 years. Taking it further, in 30 years our investment would have grown to $10062.66 – ten times our original investment.

Because the formula uses exponents (or powers) for the time, your investments grow **exponentially **with time. This means that the earlier you invest, the greater your returns become disproportionately. This is why within 10 years, we have more than doubled our initial investment despite a reasonable interest rate and not doing anything else.

A rule of thumb for calculating how long it will take your investment to double is to divide **72 **by the interest rate in % (e.g. 7). This is the number of years it will take for your investment to double (e.g. 72/7 = 10.3 years).

On top of this, if we invest small amounts every year, then we can benefit even more from the exponential growth of our investment. For example, just by adding in $100 every year, we end up with an additional $564.55 of investment earnings at the end of 10 years – a 50% increase in returns.

Unfortunately, mathematics works both ways and compound interest also applies to certain loans, such as **credit cards**. This means that your debt will grow exponentially unless you aggressively pay it back, making it seem impossible to pay off your credit card debt sometimes.