If you’ve heard this story before, you already know that choosing the penny option is the better choice and will lead to greater wealth. But why is it so hard to believe that choosing the penny will result in more wealth over time? The answer is simply because it takes so much longer to see the payoff. Most of us can’t stand delaying our gratification. This is why in general, the savings rate in the United States is very low compared to other countries, and credit card debt keeps millions of families from achieving financial freedom.
Let’s look at the math behind the story a little closer:
Assume YOU choose the $3 million in cash in hand right now, and your best friend chooses the penny gamble.
- On day #5, your friend has just 16 cents. You of course have $3 million!
- On day #10, your friend has $5.12 cents, while you are enjoying your riches.
- After 20 days your friend has $5,243, while you are treating your friends and family to dinner.
At this point, how is your friend feeling? He or she has delayed his or her gratification in hopes of making a smart, long-term decision as they are watching you live large with your mounds of cash. But…the invisible magic of “compounding” is about to take effect.
By day #31, your friend’s single penny has multiplied (or compounded) into $10,737,418.24!
This is more than 3x your original $3 million!
This simple, yet compelling, story shows why consistency over time is more important. On day #29, your friend has about $2.7 million, still a bit behind your $3 million, but by day #30 your friend pulls ahead with roughly $5.4 million, beginning to leave you behind.
The magic of compounding, along with small steps taken constantly over time, is what can lead to massive success. Just imagine exercising 15 minutes every day versus “waiting” until you suddenly have 1 hour freed up to go exercise all at once on the weekend.
Darren Hardy, publisher of Success Magazine and the author of The Compound Effect, describes success as a series of small, seemingly insignificant steps, done consistently over time.
What areas of your life could this principle be applied, so you could enjoy the results a month, a year, or 10 years from now?