If someone gave you £3,000,000.00 cash in your hand right now or said they would give you 1 penny and double it every day for 30 days which would you take?
If you’re anything like me it would have been a no brainer. The 3 million would be the obvious choice, but is that the right choice? Upon further inspection, you will realize that, the penny doubled every day for 30 days equals to…
£10.7 million! Yes a penny doubled for just 30 days amounts to £10.7 million. Sounds kinda hard to believe right? Let’s take a closer look.
|D1- 2||D9- 512||D17- 131,072||D25- 33,554,432|
|D2- 4||D10- 1,024||D18- 262,144||D26- 67,108,864|
|D3-8||D11- 2,048||D19- 524,288||D27-134,217,728|
|D4- 16||D12- 4,096||D20- 1,048,576||D28-268,435,456|
|D5- 32||D13- 8,192||D21- 2,097,152||D29- 536,870,912|
|D6- 64||D14- 16,384||D22- 4,194,304||D30- 1,073,741,824|
|D7- 128||D15- 32,768||D23- 8,388,608|
The table above shows the penny/cent (which ever currency you prefer) doubled over a period of 30 days. Remember this number is in pennies and we know there are 100 pennies to £1. So we can divide the number by 100 to get the amount in $ or £s.
1,073,741,824/ 100 = £10,737,418.24. That’s just over 10.7 million.
This is the amazing force of something called ‘Compounding.’
What is Compounding?
‘One of the most powerful forces in the world is compounding. He, who understands it, earns it, he who doesn’t, pays it.’- Albert Einstein
The above is an example of how compounding works. For the majority of the time the returns line moves in tiny increments to almost where it seems to not be moving. At day 15 (half the time till the 30 day period) the penny has only increased to £327.68.
However, you will notice from the chart above that after an initial midpoint period of really small steady gain the line suddenly propels itself in a steep upward moving curve. From the 25th day to 30th (just the last 5 days) the penny goes from £335,554 to £10.7 million.
How Does Compounding Apply to Our Lives?
Compounding is a law that doesn’t just work in monetary value. It’s working everyday of your life and continues to do so everyday. Our lifes consist of 2 things. Events and choices we make.
We don’t have full control of the events in our life, but we have been gifted with full control of how we think, act or feel at any given moment. How we think, act or feel is our own choice.
These choices we make are what build up and compound to become the outcomes in our life. We are unconsciously (some even consciously) making tiny choices everyday that are compounding in our lives.
The smallest good choice that you make consistently will compound in your life and bring you huge results over a period of time. This is the number one trait of acheivers that succecced in what they do.
They have learned the power of compounding by consistancy of good choices. They follow through with persistance and as a result the returns compound and reward them for their choices and effort.
The problem with most of us is that we give up before the midpoint phase because we can’t see the results. We never actually follow through and reap the rewards of our compounded effort.
The Light Bulb
Thomas Edison is probably most known for his invention of the light bulb in the 1800’s. He was famous for failing 10,000 times before he finally managed to crack it.
Can you imagine getting your hopes up and failing 10,000 times? (talk about consistantancy and persistance). He invested nearly all his time and money in trying to get it to work.
Most people would have given up after the 3rd or 4th failure. Good job Edison never did because now we can benefit from his efforts every time we swith on the light at home. When Edisons laboratory burned to the ground in a failed experiment (taking with it all his work and money) reporters asked him,
‘What will you do now?’ Edison replied, ‘Rebuild as soon as possible.’
Edisons consistancy and his choices led to huge returns. He made hundereds of millions of dollars for himself and his partners. He went on to patent 1000’s of inventions, making him one of the most prominant inventors in history.
Small Choices = Huge Returns
It’s the small daily choices we make and persist with over time (the pennies) that bring us the compounded results. Let’s look at a few everyday examples.
Let’s say you decide to make a small choice to consistantly workout 3 days a week. The returns in the beginning will not be very noticable (as shown in the chart above before the midpoint).
When this small choice continues over a period of time the compounding curve will then begin to propel itself upwards and you will see huge returns. This could be things like a better physique, better health, better stamina. These returns will carry on compounding.
This could spill over into the rest of your life leading you to do more activities, have more motivation, have more energy, be more confident. This could lead to you being a better role model, doing more things with your children, making more friends, having more self esteem, having more confidance.
The returns from that one consistant choice would keep amplifying. The positive results would effect all areas of your life.
The returns for individuals will be different so we can never actually say what it will lead to, all we need to know is that the compounded interest is building up. It’s just like rolling a snow ball down a hill. It collects more snow and gets bigger and bigger as it builds momemtum.
What if you choose to work on your thoughts and emotions once a day? What are the possible outcomes that could come from this small choice?
Well, you would be more pleasant, calm, positive and friendly. You could start making more friends, meeting new people which will lead to you experiencing new things.
That could lead to new oppertiunities that take your life in a different direction. That one small choice applied with consistancy could very well change your whole life.
Imagine you’re work involves sales and you chose to make 5 extra sale phone calls a day. In what ways could this compound over time?
It would lead to more sales and new leads. This could lead to a job promotion, better salary, providing a better life for yourself and loved ones. The possibilites are endless and the returns will just keep multiplying.
Compounding is working and accumulating in our lives right now by the tiny choices we make day in and day out; whether we are consciously making those choices or not.
Double Edge Sword
However we should be aware that the law of compounding is a duel edge sword. Just as the compounding line in the previous chart spikes upwards; it also does the opposite and drops off downwards with the same speed and velocity; if bad choices are made consistently over a period of time.
Here’s an example. If a young healthy 22 year old decided to eat fast food everyday of his life ,there would probably be no noticeable effects before the intial midpoint period.
However, if he continued this one choice, the returns line would take a steep turn downwards. How could this compound?
Things like obesity, diabetes, asthma, and even risk of heart disease/attack or a stroke could very well be the returns of this one small choice. This could then spill over and multiply more in his life by him being unable to do acitivites and enjoy himeslf.
This could cause him to be isolated and lose friends. This could lead to depression and worse.There are endless ways of how this one choice could compound negatively and effect his whole life.
What about compounding in the area of relationships? What if you made the small choice to never back down from an argument. How could this compound?
Well initially the effects may not be very noticable. However, after a period of time with this consistant choice, it could lead to more arguments, an unhappy houshold, resentment between you and your partner, which could lead to a break up.
This could spill over and aplify more if you persist with this mindest. You could turn into a bitter person, be hard to work with, lose friends, lose your job, end up lonely and it could effect your childrens lives.
The little choices that we make play a big role in what will happen to us and where our lives will end up.
From Little Acorns Grow Mighty Oaks
What are you compounding in your life? What good choices are you compounding? What bad choices are you compounding?
You should make a conscious decision to which ‘pennies’ you are going to compound in your life daily. Whether it’s to workout, read a book, work on your mind, do a nice thing for someone else; whatever it is, the rewards will gather up and return to you with compound interest.
Try to think of one small thing that you can do to compound daily in each area of your life such as the career, health, spiritual, financial and the relationship areas.
Here are some examples for you think about to help get you started. With a little thought you will see that there are endless positive ways these things would compound in your life.
- Wake up before 6am daily.
- Do one unexpected nice thing everyday for a loved one.
- Workout 3 days a week.
- Read a book for 30 mins a day (specifacally a book that helps you towards a goal).
- Save 10% of your income monthly.
- Meditate 10 mins a day.
- Be aware of your thoughts and feelings daily and change them to your advantage.
- Do one extra thing at work everyday thats beyond your pay.
- If you want to open a business or change your career but don’t know how then you can;
- Brain storm ideas for 10 mins a day.
- Learn by reading or watching something online for 10 mins a day.
- Contact one person everyday via email, phone or in person and ask for advice.
The little choices you have in life are endless. Don’t make the common mistake of unconciously compounding bad choices.
The biggest mistake made by people is giving up half way through i.e. before the midpoint This is because they don’t seem to be making much progress. They then turn and do something else.
This leads to living a mediocre life on the flat line before the midpoint; switching from one thing to another with minimal (if any) results. If you stick to the good choices you make, sure enough the interest will build up. By staying consistent you will benefit from the rewards that have compounded over time.
“Albert Einstein when asked what he considered to be the most powerful force in the universe answered: Compound interest. What you have become is the price you paid to get what you used to want.”- Mignon McLaughlin (American Journalist June 6, 1913 – December 20, 1983).
Any thoughts on the subject? Have you benefited from small choices made consitently overitme? Feel free to share your thoughts and comments in the section below.
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