What would you rather have? Would you like $1,000 a day for one month, or one cent a day for one month doubled every day, instead?
It’s a popular internet question and one that on the surface seems to be a very easy one to answer.
Of course you’d pick $1,000 a day! In a 31-day month for example, that’s $31,000 you’d receive by the end of the month. That’s quite the haul. And of course that must be so much better than just a penny a day, even if you doubled that penny every day, for all 31 days. Right?
Let’s be honest – a penny is basically worthless now! We don’t even mint them in Canada anymore, they cost more to make than they are worth! So how could a penny a day every day doubled add up to much? One cent doubled is two cents, two cents doubled is four cents…after one week you’d have 64 cents. No thanks – let me have the $1,000 a day instead!
But many of you already know this little trick. If you want more money, you’d take the penny a day doubled for a month. Why? Because of the miracle of compounding interest.
“Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.” – Albert Einstein
It is true that doubling a penny every day of the week would leave you with 64 cents after the first week. And after two weeks, you’d only be at a paltry $81.92. That’s a far cry from the $14,000 the first option would have racked up by then.
Ah but the point of the trick is to really illustrate the power of compounding interest over the long haul. Because friends, while you would have $31,000 by the end of the month with the first option, you would actually do much better taking the doubling penny.
Despite the slow start to the month, by the end of 31 days of penny doubling every single day you would have – almost $11 million!!! Actually you’d have $10,737,418.24 to be exact.
Wow! That’s incredible. But the question is more than just a trick and a good way to try and fool your friends, even though it really doesn’t mean much because you can’t just double your money every single day. That’s not the way life works.
True. But that “trick question” is the best example out there to really illustrate how powerful the entire concept of compound interest is, how important it is to save consistently, and how if you defer instant gratification in favor of long-term growth, you’ll come out far ahead in the long run.
That philosophy doesn’t just apply to money. The power of compound interest adds up in every facet of your life.
“Read 500 pages every day. That’s how knowledge works. It builds up like compound interest.” – Warren Buffet
How smart do you become by reading one great book? How about by reading one book a day for 31 days? What good does 10 pushups do you? What about 10 pushups every morning for an entire year without missing a day?
You get the point. It all adds up. Eating a well-blanaced sensible diet every day is going to pay off in the long run, as all those days of practicing good nutrition will give you more energy and make you healthier in good time.
All of our daily habits are like that. It isn’t what we do every once in awhile that counts, it’s what we do on a regular on-going basis that counts. Our daily actions add up over the days, and months, and years, we do them to either make us better or make us worse.
We can take our $1,000 a day and be much better off for that day. In fact in our finanacial example, the person who takes the grand a day is ahead of the person who takes the doubling penny until the 23rd day of the month! After that, the magic of compounding interest makes the penny doubler a millionaire in record time!
“Good and evil both increase at compound interest. That is why the little decisions you and I make every day are of such infinite importance.” – C.S, Lewis
We make choices every day. We become our habits. Our healthy choices make us much healthier over the long haul as the principal of compounding interest kicks in. Same thing applies to our unhealthy choices – one night of binge drinking isn’t going to kill us, but over the long haul it can be deadly to constantly behave in such a fashion.
Imagine the power of a lowly penny just doubling every day. Then imagine the power of you eating right, reading good books, working hard at your career and investing time in your marriage and children consistently, will do for you.
You’ll enjoy better health, you’ll acquire great knowledge, you’ll advance at your job and you’ll have a terrific personal and family life – guaranteed. How can we say that?
Because of the power of compounding interest. If the lowly penny can out-perform $1,000 a day over time, just imagine how your self-worth can grow with the right daily habits!
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TEAMMATES BLOG NO. 18
Good habits pay off just like compounding interest does
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