Safely Prosperous or Really Rich: Choosing Your Personal Financial Heaven

Chapter 3

The Alien in Your Chest

Compound interest can be your best friend or your worst enemy. It is a two-edged sword—far more powerful than you thought.

Do you remember the gut-wrenching moment in the movie Alien when the horrible creature that had been quietly growing inside one of the spaceship crewmen suddenly bursts out of his chest? When I first saw that, my first thought was of compound interest on consumer debt. What is compound interest? It's interest earned or charged on top of interest, and, like fire, it is a powerful servant but a fearful master. Why is it like the monster bursting out of the spaceman's chest? Because that's what consumer debt does when your job is threatened in a recession, or when you wake up one day and find that your debt has grown until you cannot service it out of your income.

Compound interest is probably the main reason you won't ever be financially secure. Many corporations have become giants because of compound interest earned at your expense. It has burrowed deep into the lives of millions of families and individuals and quietly gnawed away at their substance 24/7—even while they slept—painlessly and surreptitiously eating their paychecks even before they were earned. Then, when these people are laid off in a recession or over-committed and can't meet their compounding-by-the-second debt service, it can burst out in the form of creditor calls, sleepless nights, daymares, and irresponsible behavior they would never engage in if it were ...