Compounded Interest: A Magical Penny ($0.01) that Turns Into $10 Million in Just 31 Days

If Student Money Adviser were to offer an option to choose from $100,000 right now or give you a magical penny that will double every day for 31 days, which would you choose? I have been asking my friends, relatives, and even coworkers… What I found in this little research is that 3/4 “millennials” would take $100,000 right away without even thinking about the “penny option”. In fact even at first when I stumbled upon this kind of question I chose the $100,000. I mean who wants a penny that doubles? See why the magical penny is the right answer!

Before I jump into the discussion of magical penny, please be honest and answer the question I asked: Would you choose $100,000 or one penny ($0.01) that doubles every day for 31 days?

I am positive that 9 out of 10 of you will choose $100,000 cash just like that, I mean who wouldn’t want $100,000 cash right now.

The 1 person every 10 that picks the penny will be a multimillionaire. Why?

Because firstly it is the right answer, and secondly – you are choosing long-term over immediate gratification. Ever since I started this blog, my thinking long-term over immediate satisfaction has really been taking effect.

If you are the person that tends to throw away pennies? I know people that do this because they claim that it is just heavy on their pockets… Well, this article will change the way you view the penny! Next time you look at a penny, or say “keep the change” you will think of this article.

If I can get a penny that double value every day for 31 days I would take that RIGHT NOW.

Ok, if I am losing you and you are about to click close button in your browser, then let me put it in simple  math. The power of compound interest is really fascinating staff and honestly I was pretty shaken up after I read further into it. The secret of  compound interest? It is Time! As a millennial you can take advantage of this and will have way more money if you start as early as possible with even $10 a month!

M1 Finance

How a Penny Turns into $10 Million

When I first heard of this, I really grabbed my calculator and started calculating it, well… I lost track about half-way and gave up and turned to just a simple research on google.

 Click to Tweet this question and do a little research for yourself! (just click the link below)

Would you take $100,000 or $0.01 that doubles every day for 31 days?

After doing some math to try figure it out, I stumbled across other articles where the questions were asked in different ways like whether a person would take a $1,000 for the length of 31 days or a penny that doubles every day for 31 days. Majority of people always chose the larger sum.

Here we go, here’s the graph compiled for you of a penny for 31 days:

Are you seeing the $10.7 million on the 31st day? This is what happens when a “magical penny” doubles for 31 days with the power of compounding interest!

Reality

This graph represents the simple power of compounding interest This is great and all but is very unrealistic and you won’t find account that will double your money by 100% in returns.

If you haven’t yet opened any accounts. Consider M1 Finance or get free money by opening Acorns account ( best rounding the change investment application).

Savings Builder

The reason why I chose to post this article is because many people do not even know what compound interest is and how important it is for everybody who wants to have some great cash by the time you retire because the secret of compounded interest is time and if you are a millennial, there’s not a better time than now.

This kind of mindset helps for you to understand the importance of investing and holding the money for a long period of time will have some great returns. Almost everybody focuses on instant returns or in other words instant gratification instead to holding onto something for some time.

Putting it Into Real World Numbers

The whole purpose of this post as I described above is for you to understand how the compound interest work. It is to show how investments gain value over period of time.Best thing you can do for yourself today for your future is to start putting money away or open an investing account (I highly recommend M1 Finance) or simply download an app called Acorns, connect bank accounts, choose level of investment and forget about it for some time.

A simple investing of $100 per month at an average return rate of around 10% will give you around $55,000 after 20 years. Investing $150 per month will earn you just under $90,000 in 20 years. Hopefully as your income increases, you will also invest more which will earn you even better return. The more money you invest, the more interest you will earn. As your balance increase, so does the interest you earn. Pretty great for just investing $1,200 per year ($120/month) and earn over $30,000 in interest in just 20 years. Not investing the money will not get you anywhere and why would you not invest???

Power of Investing and Saving

Ask yourself this simple question: Do I want to retire and have more than enough money to secure a great financial future? If your answer is yes then start investing and saving today. Stop throwing away money on useless things that you will only lose money on over time, look for deals, seasons, buy in advance, and do your research on everything! There are way too many people living paycheck to paycheck, if it is you then make a change or get going with something on the side to generate more income.

Growing your money is rather simple once you get some basic knowledge and using the power of compound interest will only boost and  secure your financial life for even better in the time to come. You can thank me later after a few decades of your consistent investing.

Remember the secret of compound interest is time. The earlier you start – the more money you will gain from interest.I mean check out this graph with 8% return, and I hope this will help you to finally make a step forward.

If you need help, see how to get started with investing with just $100 or another great post of Millennials and Average Net Worth by Age.

Realize

No matter what you decide next, think of investing as a key to personal financial success. Think of it as having 10% extra every year for the next 20-30 years and how much this could change you financial life. It is never too late to start investing, if you are young like me, start just by putting little amounts of money and then investing more and more as your income grows.

Richard Barnett is a student majoring in finance, entrepreneur, marketer, content writer, budget traveler, and financial blog “Student Money Adviser” owner. You can read more about me here.

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