Financial Terms Everyone Should Know – Emergency Fund & Compound Interest

Everyone needs an emergency fund! Flat tires, medical bills, car breakdowns, and other unexpected expenses will happen, and usually when you can afford it the least! Having an emergency fund prevents the need to use your credit card or take out a loan to cover such as expenses. The recommended amount of a fully funded emergency is three to six months of living expenses.

Interest has been called the 8^th wonder of the world. Interest is the “rent” that a bank or credit union pays on your savings as long as it is on deposit. What makes compound interest such a good thing is that the interest paid on your money earns interest. At 4% interest, $100 grows to $104 in one year, 108.16 in two years, $112.49 in three years, and after 30 years, the original $100 grows to $324.34 with no additional deposits! Compound interest is great when it’s working for you, but can be devastating when working against you!

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