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.
$3 Million vs. 1 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.
The Magic of Compounding
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:
Small Improvements Accumulate Into Massive Changes
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.
- If you hit the gym three times for a week, you won’t get any noticeable results (except maybe some soreness). But if you keep showing up just as often for a year, you’ll accumulate 150+ hours of exercise. That’s more than enough to have a significant effect on your health and fitness.
- If you read one good book, that won’t make much of an impact on your thinking. But if you read one every month for a year, you’ll finish 12 titles. That will give equip your mind with plenty of new mental models to improve your thinking.
- If you meditate a couple of times, it probably won’t create any lasting changes. But if you do it for 10 minutes each day for a year, you’ll have 60+ hours of meditation practice. And that will most likely have considerable positive effects on your health, well-being, and performance.
Tiny Improvements Are Immensely Powerful
So, instead of looking for big wins, start small.
Allow compounding to work its magic and, over time, it will create remarkable outcomes.