Having $45,000 does not make you a millionaire. Notice, however, that this tidy sum is the result of saving

$3,000 exactly once. Saving that amount every year for several decades—or saving more as income rises—will

multiply the total considerably. This type of wealth will not rival the riches of Microsoft CEO Bill Gates, but

remember that only half of Americans have any money in mutual funds at all. Accumulating hundreds of

thousands of dollars by retirement is a perfectly achievable goal for a well-educated person who starts saving

early in life—and that amount of accumulated wealth will put you at or near the top 10% of all American

households. The following Work It Out feature shows the difference between simple and compound interest,

and the power of compound interest.

WORK IT OUT

Simple and Compound Interest
Simple interest is an interest rate calculation only on the principal amount.
426 17 • Financial Markets

Step 1. Learn the formula for simple interest:
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