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 $4,368,709.12, 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. 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.
You May Also Like: 65 Best Investing Quotes for Wealth Building
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.
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
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.