Have you ever heard the old question about the penny and a million dollars? Summed up, would rather have a million dollars immediately or a penny that doubles every day in worth for thirty days? Seems like a simple answer. You would want to take the million dollars, right?
Well, you would actually be wrong. That insignificant penny becomes $5,368,709.12 on day number thirty. Yes, you read that right. Over five million dollars. But how is that even possible? Through exponential growth, similar to how investing works. It’s important to note that taking away 3 days of growth makes the total amount only around $700,000. Let’s look at why it’s important to start investing earlier than later.
The Power Of 72
The Power of 72 is a common term in regards to investing. Basically, it means that any amount of invested money will double over 6 years. If you invest $5000, in 5 years that total should be at $10,000. And then in 5 more years, $20,000. That is how exponential growth works — the principle growing and growing at an accelerating rate from the increase of principal. This is why an exponentially growing penny can beat a million dollars. If your saving plan adds value out of every paycheck, that doubling occurs much faster because the principal is building, increasing your returns as more investment is added.
Why do some people get to retire at fifty and others have to work late in their sixties? One main reason for this is because the people who retired at fifty invested their money. As mentioned earlier, investing grows exponentially over time. If you invest $5,000 at the age of 20, you will have around $320,000 dollars around age fifty-five (following the power of 72 principle). This amount will be even larger if more money is invested as those years go by. This is why it’s important to start investing as early as possible.
So whether you’re a schoolteacher, a lawyer, or an RPA specialist at Amitech Solutions, you should start investing a portion of every paycheck into an investment as early as possible. If you do this, you might be able to enjoy more time later in life with your grandkids, relaxing on whatever beach resort you wish.