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Compounding

Submitted by Philip Brewer on January 7, 2008 - 05:55.

Clearly the compounding effect of reinvesting is a huge part of eventually becoming wealthy.

But I was trying to make the point that investment income has uses besides just compounding for eventual future wealth. Even a pretty small amount of extra income can be an important cushion during a financial emergency, or a boost toward covering an expense that would otherwise have been a burden.

If you invest a few thousand dollars so that it provides an extra $10 or $20 a month in income, and then spend it--well, you're not going to make much progress. But if you start by reinvesting, then long before the income reaches levels that would allow you to retire, it can still have uses that can make a big difference in your life.

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