Compound Interest Calculator
The Power of Compound Interest
Albert Einstein reportedly called compound interest the "eighth wonder of the world." It's the engine that powers wealth creation and the cornerstone of the Financial Independence movement.
Compounding is the process where your investment earnings begin to generate their own earnings. It creates a "snowball effect"—as your investment pool grows, the earnings accelerate, allowing your money to work for you. This calculator helps you visualize this powerful concept and see how consistent investment can lead to significant wealth over time.
Calculate Your Growth
Enter your details below to see how your money can grow. Adjust the numbers to understand how small changes can have a big impact on your long-term wealth.
Initial Investment
Monthly Contribution
Annual Interest Rate (%)
Investment Timeline (Years)
The Magic of Compound Interest: Your FI Engine
Often called the "eighth wonder of the world," compound interest is the engine that powers your journey to Financial Independence. It's the concept of earning returns not just on your original investment (the principal), but also on the accumulated interest from previous periods.
Think of it like a snowball rolling downhill. As it rolls, it picks up more snow, becoming larger and larger. The bigger it gets, the more snow it collects with each rotation. Your money works the same way, growing at an ever-increasing rate over time. This calculator helps you visualize that powerful acceleration, turning your savings into a wealth-generating machine.
How to Use This Calculator
1. Chart Your Course to FI
Enter your starting investment (your current FI fund), how much you plan to contribute monthly (fuel for your FI rocket), and your expected real rate of return (after inflation).
2. Fuel Your Growth Engine
Set your investment timeline in years. This is the period you'll be actively saving and letting your investments compound before you consider retiring early.
3. Visualize Your Freedom
The chart instantly reveals your wealth's growth trajectory. The steepening curve is the magic of compounding at work, accelerating you towards your FI number and financial freedom!
Compounding: The Cornerstone of Financial Independence
The Financial Independence movement is built on a simple but powerful foundation: saving a large portion of your income and letting compound interest do the heavy lifting. The goal is to build an investment portfolio large enough that you can live off its returns indefinitely—this is your 'FI Number'.
A common guideline for finding your FI number is the 4% Rule, which suggests your portfolio should be 25 times your estimated annual expenses. Once you reach this number, you can theoretically withdraw 4% each year to live on without depleting your principal over the long term.
By consistently investing, you give your money the maximum time to grow. This calculator demonstrates how even modest monthly contributions can swell into a substantial nest egg, making goals like early retirement not just a dream, but a mathematical possibility.
Your Savings Rate: The Most Powerful Lever
While market returns are important, your savings rate is the most critical factor you control on your FI journey, especially in the beginning. The more you save, the faster you reach FI. It's a two-pronged attack: a higher savings rate means more money is being invested, and it also means you're learning to live on less, which reduces your ultimate FI Number.
Use this calculator to run 'what-if' scenarios. What happens if you increase your monthly contribution by 00? Or $500? See how small changes, applied consistently, can shave years off your retirement timeline.
Curious about how your savings rate directly impacts your time to FI? Check out our Time to FI Calculator to explore the relationship in more detail.
Frequently Asked Questions
What is compound interest?
Compound interest is the 'interest on your interest.' It's the process where the interest you earn is added back to your principal, and future interest calculations are based on this new, larger amount. This creates a snowball effect, causing your wealth to grow at an accelerating rate.
How is this different from simple interest?
Simple interest is only calculated on the original principal amount. With compound interest, you earn returns on the principal plus all the accumulated interest from previous periods, leading to significantly greater growth over the long term.
What is the 'Rule of 72'?
The Rule of 72 is a quick mental shortcut to estimate how many years it will take for an investment to double. Simply divide 72 by your annual interest rate. For example, at an 8% annual return, your money will roughly double every 9 years (72 / 8 = 9).
What is a realistic interest rate to expect?
While past performance isn't indicative of future results, the historical average annual return of the S&P 500 (a common benchmark for the US stock market) has been around 10% before inflation. A conservative estimate, after accounting for inflation (a 'real return'), might be 7-8%. It's wise to experiment with different rates in the calculator to see a range of potential outcomes.
What is the 4% Rule and how does it relate to my 'FI Number'?
The 4% Rule is a guideline used for retirement planning that suggests you can safely withdraw 4% of your investment portfolio in your first year of retirement, and then adjust that amount for inflation each subsequent year, with a high probability of your money lasting for at least 30 years. Your 'FI Number' is the total portfolio value you need to achieve this. You can calculate it by multiplying your desired annual retirement income by 25 (since 1 / 0.04 = 25). For example, if you want to live on $40,000 a year, your FI Number would be ,000,000.