Simple interest is computed on the amount of the principal of a loan.
Compound interest is computed by multiplying the sum of the principal and the accrued interest by the rate of interest. This calculation must be refigured each time the principal is compounded. The first step in personal financial planning is to get a clear picture of where you now stand. An inventory of expected income and expenses projected on both a monthly and an annual basis will allow individuals and families to create a budget. A budget helps to keep expenses within the boundary of income while also showing what amount, if any, is available for investments.