Question 1

What is compound interest and how does it work?

Accepted Answer

Compound interest is interest earned on both your original money and the interest it has already earned. Because each period's gains are added to the balance, growth accelerates over time — the longer the money stays invested, the bigger the effect.

Question 2

Does a monthly contribution really make that much difference?

Accepted Answer

Yes — regular contributions are usually the biggest driver of the final balance, more than the starting amount. Adding a fixed sum every month means more money compounding for longer, so small, consistent deposits add up dramatically over years.

Question 3

What interest rate should I use?

Accepted Answer

Use a realistic rate for where the money sits: roughly 4–5% for a high-yield savings account, or a long-term average of about 7% for a diversified stock portfolio. Lower, conservative rates give you a safer estimate.

Question 4

Does this account for inflation and taxes?

Accepted Answer

No — the result is a nominal figure before inflation and taxes. For a rough real-value estimate, subtract about 2–3% from your rate, and remember that gains in a regular account may be taxed while those in a tax-advantaged account usually aren't.

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