Think about this.

You have $5 million available for investment.

You put that money in an Index ETF that returns 2.5% annual dividend (not a demanding return).

*What will that give?*

You will get an average of $10k a month of dividend.

Not bad huh?

I didn’t understand the practical implication of interest rate when I was young.

Yes, I know the term ‘interest rate’ in theory, and I know how to calculate compound interest from one of the modules I studied in school.

But it was just in theory.

In business, it is common to take a bank loan with a 5% interest.

I did that in my wholesale business.

I borrowed $50k, paying about $200 of interest every month.

That’s not much right?

That’s what I thought at that time. But now I have a different view of it.

If I borrowed $50k at 5% interest a year, **I would have paid $50k of interest after 20 years!**

Bear in mind that time flies.

Once you take up a loan and start paying the interest, you will become ‘comfortable’ with it.

Unknowingly, you would have paid a lot of interest, yet you still owe the bank a lot of money!

**A Simple Way To See Interest Rate**

I have a simple way to see the ‘true color’ of interest rate.

Instead of looking at the interest rate, you look at the **number of years the loan will be doubled**.

For example,

With 5% interest rate, it takes 20 years to double the loan.

With 4%, it takes 25 years.

With 25%, it takes 5 years!

I pick 5%, 4% and 25% because these are the common interest rates.

Most business loan interest is 5%, balance transfer interest is about 4% and credit card interest is about 25%.

So, instead of looking at what is the monthly payment i.e. installment, I will look at how long it will take for me to pay double the money.

Then the next question is, is it worth it?

If the answer is no, then I will not take up the loan.

If you have taken a loan, make it an effort to pay back the money as soon as possible and not be comfortable with paying just the installment or interest.