Like nearly everyone else on the internet, I’m a fan of xkcd, the nerdy webcomic from Randall Munroe. My wife, who’s a chemist, loves xkcd’s science episodes (such as this and this), while I like everything else (especially this and this). And let’s not forget the map of online communities!
Many of you e-mailed to tell me that yesterday’s xkcd tackled a subject near and dear to our hearts: personal finance. Specifically, Munroe poked a hole in the myth of the magic of compound interest. Sort of. Here’s the comic:
I’ve received several messages from readers over the past few months questioning the efficacy of compounding. Here’s the thing, though: Compounding is awesome. And it works. But it’s not a magic bullet. It’s one tool in your financial toolbox, a toolbox that includes Roth IRAs and budgeting and conscious spending. So let’s be clear: A high-yield savings account won’t make you rich. In fact, no single financial tool is going to do that. But used together, you can construct the life of your dreams.