A penny doubled for 30 days doesn’t sound like much, right? After all, it’s just one penny, so why would anyone care?
What if we told you that a penny doubled every day would mean that thirty days from today, you would have over 5 million dollars?
It sounds like a trick question; we get it. But theory shows that the earlier you invest money, the faster you’ll build wealth.
$1 Million vs a Penny Doubled for 30 Days
Most people would automatically take 1 million dollars instead of a penny doubled for 30 days because a penny doubled sounds like nothing, right? Who in their right mind would choose a penny over 1 million dollars?
It’s hard to look at a penny and think thirty days from today, it could be worth 5 million dollars.
The truth is, though, that 1 penny doubled for 30 days is worth $5,368,709.12, more than $1 million today! Why is this? If you take a lump sum today, it doesn’t earn compound interest. You take the entire principal amount now versus letting small amounts of money grow over time.
It’s all due to compound interest. A penny doubled for 30 days doesn’t mean you’re adding an extra penny each day. You double a penny the first day. On the second day, two pennies are doubled. The third day is four pennies doubled, and it goes on for 30 days from today, as you’ll see in the chart below.
The key is to start investing early, even if it’s just a penny, and let the earnings earn interest. Of course, it’s not just your contributions that earn interest, but the interest you already earned accumulates interest too.
Of course, this is just for illustrative purposes since no one can realistically double their earnings daily. Still, you can see the power of compound interest and how it can be worth so much more than getting a full amount of money upfront.
How It Works: A Penny Doubled for 30 Days Chart
A Penny Doubled for 30 Days Is How Much?
It’s pretty surprising that when a penny doubles every day for 30 days can turn into $5,368,709.12, isn’t it? For most, it’s hard to even fathom how pennies can grow into over a million dollars. But again, this is a penny doubled every day. In real life, this wouldn’t happen for most people, but it shows the power of compound interest and can help you realize the value of saving or investing any money, even if it’s just your spare change.
The key is to start investing early. The longer you wait to invest, the more you’d have to contribute to come close to the same earnings, but even delaying a few years can cost thousands of dollars. For example, let’s say you waited 15 days from today to start investing. You’d need to double $163.84 a day to come close to the same magnitude. If you started earlier with a single penny, you’d need much less per day.
Investing has the same concept. The earlier you invest, the more money you’ll have in the long run. Think of investing for retirement, for example. If you invest even small amounts in your 20s, you’ll have much more money in retirement than you would if you waited until your 40s to save for retirement.
The Power of Compound Interest
The power of compound interest sounds complicated, but it’s actually a simple concept. When you invest or save money in an account and don’t touch it for a long period, the contributions (the money you invested or saved) AND the earnings grow. Not only is the money you invested (or saved) growing, but so are the earnings if you leave them.
Even if the return remains the same, say 5%, you’re earning 5% on a much larger balance each time the balance grows. So if you can leave the money untouched for as long as possible, you’ll have a much larger amount of money saved for the future. This is why investing for retirement today is important, leaving the money untouched until you’re well into your retirement years.
The key is to invest or save money as early as possible. Waiting even 15 days from today can negatively affect your final balance. Investing or spending with pennies might not seem to make much of a difference in your life, but a penny doubled for 30 days proves otherwise.
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The Grain of Rice Fable
The grain of rice fable is what started the double a penny for 30 days theory. It started millions of years ago in India with a raja who thought he was wiser than everyone else. In his province were rice farmers. The raja convinced the rice farmers to give him all of the rice they farmed. The raja promised to store the rice safely so should famine hit, they would all have the rice they needed to survive.
For a while, the rice grew at a good pace. The farmers continued giving the raja all their rice, receiving only enough to get by each day. Then one day, famine hit, and there wasn’t enough rice for farmers and their families to survive.
The farmers begged the raja to give them a small amount of rice from the rice stored, but the raja refused. He wanted to keep the rice in storage for himself because he didn’t know how long the famine would continue. So he refused to help his people.
One day, the raja started a feast for himself. He had a servant take rice from the storehouse to the feast by elephant. He didn’t realize that grains of rice were falling from the elephant as he made the trip. A girl from the village saw the rice grains falling and picked them up, following the elephant so she could gather more rice.
When a guard spotted her, he accused her of stealing. But the girl claimed she was collecting the rice to give back to the raja. Once the raja heard this news, he ordered the girl to come to see him so he could reward her for her honesty.
When the girl met with the raja, he asked her what she wanted for her honesty. He said he would give her anything, but all she asked for was one grain of rice doubled each day for thirty days. So on the next day, or day 2, she wanted two grains of rice, day 3 four grains of rice, and so on for thirty days.
The raja couldn’t believe she asked for something so simple, so he happily agreed. After that, the raja continued giving her double the grains of rice each day, all the while thinking she should have asked for something much more or at least kept the rice grains she collected in her skirt rather than returning them to him.
What the raja didn’t realize was how quickly the rice would add up. On day 21, she had enough rice to fill a basket (1,048,576 grains of rice). By the 29th day, she received all of the rice grains in two storehouses. By the 30th day, it took 256 elephants to carry the 536,870,912 grains of rice to the girl.
The girl now had over one billion rice grains, and the raja had nothing. The village was no longer in famine, and the girl left the raja with a basket of rice so he too could survive.
Related Article: Chapter 9: Investing
The Rule of 72
Now let’s look at a more realistic way to learn how to double your money. While thinking about how to double a penny for 30 days is nice, no one earns that rate of return on their investments, especially thirty days from today. But the rule of 72 can help you understand how long it would take to double your money.
To determine how long it would take to double your money, use the following formula:
72/Your expected rate of return = Years to double
Say, for example, you expect a 5% return. It would take 14.4 years to double your investment. This way, you know about how much money you’d have in 14.4 years, given the contribution you make today.
The rule of 72 continues in equal increments, too, from that point. So in 28.8 years, you’d quadruple your investment and so on.
This can help you put into perspective how much you should save or invest now and what it will look like in X number of years. Sometimes it’s hard to see the big picture, making it easy to lose motivation when investing, but knowing that in “X” number of years, you could double your investment, you might feel much more motivated.
How to Make More Money
So you know it’s important to invest, especially when you can double your earnings in a short amount of time. But what if you don’t have money to invest?
Our illustrations show that no matter how little you invest, it matters. But here are some ways to make more money so you can invest.
Start a Side Hustle
If you have a passion or can do your full-time job on the side, consider using your free time to make more money. For example, can you consult in your industry, or are you a tradesman that can do work on the side, like an electrician?
You can also start side hustles online, such as freelance writing or graphic design.
Think about what you’re good at and how you can use those skills to make money on the side, allocating the funds for your investments.
Work a Part-Time Job
Consider a part-time job if you don’t want to start a side hustle. Even if you work two or three nights a week, you’ll earn extra money to invest. Find a fun part-time job that doesn’t stress you out, and you’ll gladly exchange your free time to help your net worth grow!
Work Gig Jobs
There are hundreds of gig jobs you can do today. Uber, Lyft, Uber Eats,
You are your own boss with gig jobs, which is nice, but make sure you pay attention to the tax liabilities they create so you don’t invest funds you need to cover your taxes.
Cut Back on Expenses
Cutting back on expenses is one of the easiest ways to make more money because you don’t have to trade your time for money. So instead, go through your budget and see where you can cut back.
For example, do you pay for subscriptions you don’t need? Maybe you overspend on eating out or buying coffee. Find the areas you spend the most and cut back. Also, consider using coupons at the grocery store, shopping sales, and meal planning to avoid those last-minute runs through the drive-thru.
Also, consider shopping for cheaper services like insurance, utilities, internet, and cable.
Any money you save, put toward your investments, allowing your money to grow while making bill paying less stressful.
Investing to Double Your Money
Investing is a key way to double your money. While some people turn to gambling, this is inadvisable because you’re just as likely to lose your ‘pennies’ as you are to double them.
Of course, there’s no guarantee you won’t lose money with investments, but your chances of earning money is greater.
When you put money in the stock market, you buy shares of a company and earn profits as they grow (hopefully). The average stock market return is 10% over ten years, so if you can buy and hold for the long term, you may have a 10% return on your investment.
It will take 7.2 years to double your investment if all goes well. That’s not a long time!
This doesn’t guarantee stock investments will have exponential growth, but if you diversify your investments and stick to what you know, you can limit your losses and increase your chances of doubling your pennies.
Peer-to-peer lending has its risk but plenty of rewards too. As a peer-to-peer investor, you are the lender. You invest in loans for individuals who might not qualify for traditional bank financing.
Prosper, SoLo, and Funding Circle are some popular peer-to-peer lending platforms, but there are many more.
When you invest in peer-to-peer lending, the platform grades the borrower, so you know the risk involved. The lower the grade, the riskier the borrower, and the higher the reward. Most platforms allow investors to invest as little as $25 per loan, so you can diversify your risk and increase your rewards.
Smart 401k Contributions
Don’t overlook the benefit of your 401K, especially if your employer matches a portion of your contributions.
For example, if your employer matches 3% of your salary, ensure you invest 3% of your salary to get the free contributions. You instantly double your contributions, and they will grow with the earnings.
Best Investment Apps
To make life easier, there are hundreds of investment apps to automate investing and make it more accessible. Here are some of the best investment apps available.
Acorns is a great investment app for people just starting out or who don’t have a lot to invest at once. Acorns is a micro-investing app that invests your spare change by rounding up your purchases and sweeping the change into an investment account.
You can also set up automatic contributions with Acorns and have a taxable or retirement account to help you save for the future. Like Betterment, Acorns invests in low-cost ETFs.
Betterment is a robo-advisor, so it automates investing for you. You must answer some questions about your risk tolerance, financial goals, and timeline, and Betterment does the rest.
You decide how much to contribute and can set up automatic contributions to keep growing your balance. Betterment invests your funds in ETFs, including socially responsible portfolios, if you want an eco-friendly portfolio.
Robinhood is a trading app that doesn’t charge commissions. Its user-friendly interface is great for beginners or experienced investors who want to be more active in their investment choices. You can invest in stocks, ETFs, crypto, and options without a minimum balance required.
How Much Is a Penny Doubled for One Year?
A penny doubled for a year is a number larger than anyone can count or write. When you double a penny for 365 days, the result is much more than the end result on day 30.
How Early Should I Start Investing?
The earlier you can invest, the better. If you’re an adult, start today. It’s never too early or too late to start. If you have kids, start them now. They have even more time than adults to let their earnings compound. The key is to allow as much time for compound earnings as possible to increase your net worth.
Can I Get Rich From Compound Interest?
Compound growth alone won’t make you rich, but combining regular contributions and compound interest can get you closer to your financial goals. The key is to find investments with a high annual rate of return and a risk factor you can handle so you leave the investment long-term.
Who Benefits the Most From Compound Interest?
Everyone benefits from compound interest, but the younger you are when you invest, the more you benefit. It’s strictly because of the amount of time you have to let the earnings compound. The older you are, the less time you have before using the funds, giving less time for earnings to compound.
Doubling a Penny: Key Takeaway
The theory of a penny doubled for 30 days puts saving and investing into perspective. Even if you can’t double a penny every day, it demonstrates the power of compounding interest and the value of investing early. It doesn’t have to be a huge amount. Even spare change can compound into something much larger.
Samantha Hawrylack is a personal finance expert and full-time entrepreneur with a passion for writing and SEO. She holds a Bachelor’s in Finance and Master’s in Business Administration and previously worked for Vanguard, where she held Series 7 and 63 licenses. Her work has been featured in publications like Grow, MSN, CNBC, Ladders, Rocket Mortgage, Quicken Loans, Clever Girl Finance, Credit Donkey, Crediful, Investing Answers, Well Kept Wallet, AllCards, Mama and Money, and Concreit, among others. She writes in personal finance, real estate, credit, entrepreneurship, credit card, student loan, mortgage, personal loan, insurance, debt management, business, productivity, and career niches.