Last week I came across two very interesting articles, both surrounding the power of compounding.
- The first was by Broke Millennial titled “An Impassioned Plea for Understanding Compound Interest” and it was a great refresher on how the math works behind it all. (As well as how simple the basic foundations of growing wealth is!)
- The second article, which I just recently stumbled across, was by Barbara Friedberg who wrote about why you should start investing NOW over at Good Financial Cents. And that’s the one that REALLY got my head spinning…
I know the power of compounding interest just as much as the next guy, but there was a calculation Barbara ran in her article that immediately stopped me in my tracks and raised the “doubt” flag.
She said that if you doubled a penny for an entire month, you’d have over $10 Million dollars by the end of day #31.
COME ON! No way???
At first I wrote it off as a mistake (maybe she meant 10 Million pennies? Or, more than likely, 1 Million pennies?) but by the time I finished the article, I still couldn’t shake her statement. My curiosity got the best of me, and I decided to run the numbers myself.
I opened up a fresh Excel spreadsheet, plugged in a quick calculation (“above cell x 2” copied down 30 lines), and hit enter.
Here’s what it showed:
By day #18 the doubling penny is now worth $1,301.72. By day #28 we’re well over a million dollars at $1,342,177.28. And by day #31 – as promised – we’ve crossed the $10 Million mark at a staggering $10,737,418.23.
That’s the power of compounding folks.
So how do you apply this to “real” life? (And, more importantly – to our OWN finances so they can double to millions of dollars over our lives?) Easily. By doing two things:
- INVESTING your money Right. Now.
- Letting it ride for years and years and years and years (perhaps 31 of them? :))
As Barbara mentions in her article, we’ll be hard pressed to find 100% returns every day, month, or year invested, but as the dates tick on you’ll certainly find your monies growing quite healthily. It just takes time for the compounding to do it’s thing. Well, that and the initial investments of course.
So any time you doubt the power of compounding going forward, do yourself a favor and think of these little magical pennies here. In fact, do yourself one better and print off that image there to tape to your computer! That way every time you open up Amazon you’ll be reminded how much you’re really spending.
(I’m off to go raid all my penny jars now…)
PS: Don’t click that Amazon link.
[Awesome photo of toned pennies by Mark Turnauckas]