Imagine that you’re given a choice right now.
You can get either $3 million in cash immediately, or a penny that doubles in value every day for the next 30 days.
Which option would you choose?
Most people would take the $3 million.
So, let’s say you do that, and I get the penny.
At the outset, you’ll have every reason to be happy with your choice.
After one week of compounding, my penny is worth a meager 64 cents.
After two weeks, it’s at a modest $81.92.
And after three weeks, I’m still way behind you.
Sure, the penny has transformed into a respectable $10,485.76, but that’s still not much compared to your $3 million.
But then, a few days into the third week, something starts to happen.
On day 28, the penny has grown into a remarkable $1,342,177.28.
On day 29, I’m right behind you with $2,684,354.56.
And on day 30, I finally pull ahead as my stack of cash compounds into an astonishing $5,368,709.12.
The compounding penny illustrates something that our brains have a hard time to grasp intuitively:
And this is just as true in life as in finance. In his book, Atomic Habits, James Clear explains:
Here’s how the math works out: if you can get 1 percent better each day for one year, you’ll end up thirty-seven times better by the time you’re done. Conversely, if you get 1 percent worse each day for one year, you’ll decline nearly down to zero. What starts as a small win or a minor setback accumulates into something much more. Habits are the compound interest of self-improvement.
Whenever you make a choice, like ordering a salad instead of a hamburger, that single occasion won’t make much of a difference.
But as you keep repeating the same decisions and actions over weeks, months, and years, they will compound into huge results.
So, instead of looking for big wins, start small.
Allow compounding to work its magic and, over time, it will create remarkable outcomes.