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.
This article is an excerpt from my book The Decision-Making Blueprint.