This is one of those thought-provoking questions floating around the internet. I first caught wind of this question when I was randomly browsing Reddit on r/PersonalFinance. If you were to take a penny and double it for 30 straight days, how much will you have in the end?
It might seem like a pretty silly and simple question, but if you don’t know the actual answer, it might surprise you. Let’s take a look at the math and see how much a penny doubled for 30 days would turn into.
The power of compound interest
This little exercise demonstrates the power of compound interest. If you have never heard of this term, let me give you a quick definition.
Compound interest is defined as the addition of interest to the principal loan or deposit over a period of time. In simple English, it simply means that if you deposit money consistently over a period of time, the money you initially put in earns interest, the money you continue to put in earns interest, and the interest earns interest.
The principle is the same as a snowball. When you roll a snowball off of a huge hill, it starts off small But as time goes on, gets bigger and bigger. That is basically what compound interest is.
Looking at the doubling a penny for 30 days analogy, every time you double a, the double pennies also get doubled. Just like a snowball, starts off slow and small, but grows exponentially.
On day one you will have $0.01, on day two you will have $0.02, and on day $0.04 on day for. On and on we go.
What happens to this penny over 30 days?
Now that you have a basic understanding of compound interest and how this is going to work, let’s figure out how much this penny turns into over 30 days.
|Day 1||$0.01||Day 16||$327.68|
|Day 2||$0.02||Day 17||$655.36|
|Day 3||$0.04||Day 18||$1,310.72|
|Day 4||$0.08||Day 19||$2,621.44|
|Day 5||$0.16||Day 20||$5,242.88|
|Day 6||$0.32||Day 21||$10,485.76|
|Day 7||$0.64||Day 22||$20,971.52|
|Day 8||$1.28||Day 23||$41,7743.04|
|Day 9||$2.56||Day 24||$83,886.08|
|Day 10||$5.12||Day 25||$167,772.16|
|Day 11||$10.24||Day 26||$335,544.32|
|Day 12||$20.48||Day 27||$671,088.64|
|Day 13||$40.96||Day 28||$1,342,177.28|
|Day 14||$81.92||Day 29||$2,684,354.56|
|Day 15||$163.84||Day 30||$5,368,709.12|
If you simply took one penny and doubled it every day for 30 days, you will have a total of $5,368,709.12.
This here is where you will see the power of compound interest. For the first 21 days, it only totaled $10,485.76 and completely blew up on the last 9 days.
How to start saving
As you can see, by using this strategy, something as small and meaningless as a penny can quickly turn into something huge with time! That’s why, in the world of saving and investing, it’s absolutely important that you start early, and be consistent!
If you are just starting out with investing, I would strongly recommend checking out Acorns! Acorns simply allows you to round up your purchases and invests your spare change for you, automatically. Simply set it up and forget it.
As this example shows, investing starts small, but with time, can grow into a huge nest egg. Check it out here.
A real-world application of this phenomenon is saving up for retirement. The earlier you start, the more you will have in your retirement.
Imagine if we only doubled this penny for just 15 days. By cutting the saving time in half, you will only have $163.84. Compound interest works wonders if you remain consistent, start early, and give it time.
Always remember this if you want a retirement with well over $1,000,000. If you start at age 40, it’s almost impossible to reach this goal. However, if you start at a young age of 25, with an average return of 6%, you can have well over $1,000,000 in retirement!
Something just as important as saving your money is to keep track of it. I have a wonderful quote for you:
What gets measured gets improved ~ Robert SharmaTweet
If you want to improve anything, especially your personal finances, you have to measure and keep track of it every step of the way. By blindly saving and keeping your fingers crossed, how can you be certain you’re making progress?
I personally use Personal Capital to keep track of my net worth, finances, budgeting, and progress towards my financial goals. Just like this example of doubling your penny, you have to keep a close eye on it to make sure you’re on track and getting to your financial goals!
If you’re serious about reaching your financial goals, make sure to check out Personal Capital and start keeping track of your wealth! There is no better app out there that does it this well. Believe me, I’ve looked 🙂
Happy investing 🙂
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