When I was in high school, I hated the matrix operations chapter in algebra.

Compound interest, on the other hand, had a real-life application, and can make millions over time. I wish someone had told me: "Make sure you undestand; this is the most important concept to grow your money."

But since they didn't, let's learn about it all over again.

1. Interest earned snowballs over time (Think Savings Accounts)

The more you leave this money untouched, the larger would be the interest you earn.

Imagine you put $100 in a savings account that pays 5% interest per month. Your bank invests this money elsewhere, and you get a guaranteed return. When 1st month ends, you earn interest, but say you don't withdraw it. Your bank now gets to invest $100 (principal) plus the interest you've earned.

1st month, you earn 5% of $100 = $5, so now you have $100+$5 = $105

2nd month, you earn 5% of $105 = $5.25, so now you have $105+$5.25 = $110.25

3rd month, you earn 5% of $110.25 = $5.51, so now you have $110.25+$5.51 = $115.76

Slowly, your money grows with time.

If the interest compounds ever year (instead of every month), you'd need to wait one whole year for earning the first 5%, and another for the next 5%, and so on.

2. Interest owed also snowballs over time (Think Credit Card Bills)

Now imagine, the roles are reversed.

Say you couldn't pay your credit card bill this month. Here, the bank has lent you money to cover the expenses in your bill. If don't pay the bill, you owe them interest (sometimes as high as 15%-25%).

Each month you don't pay, the interest owed compounds, and you owe the bank more.