Which one would you pick if I asked you – 1 crore rupees at start of the month or 1 paisa that would double every day for the following 31 days? Yes, you read that correctly. It’s not one rupee, but one paisa – 1 paisa, which doubles every day.
So if you get 1 paisa today, it will double to 2 paisa tomorrow, 4 paisa the next day, 8 paisa the next day, 16 paisa on the fifth day, and so on. Now, 1 crore appears to be a large sum that can be compared with something as small as 1 paisa.
You would have heard of the story of David slaying the giant Goliath. Sometimes, someone even as tiny as David has more potential than the Giant Goliath.
When given the choice between 1 Cr and a regularly increasing paisa, most of us will likely choose the 1 Cr. But we need to keep in mind that one paisa has the ability to multiply every day.
Let us attempt to comprehend the cognitive process at work here.
Most of us are more inclined to the 1 Cr since it is a large quantity of funds that is accessible now, i.e., you will receive it immediately with no future concerns. We are all aware that consuming sweets is detrimental for our health, yet we can’t stop ourselves. This is due to the fact that we desire joys now rather than later. It is human nature to choose immediate satisfaction over delayed gratification. We are less ready to wait for future rewards and are more eager to enjoy what is offered now. However, this is not always prudent.
Let us observe what happens to the growing paisa as time passes.
So, after 10 days, we’ll have 512 paisa (Rs. 5.12). Perhaps this is why picking 1 Cr looked to be the more appropriate choice, as we will still have just Rs. 5 after 10 days of investing. Let’s wait and see what happens in the following 10 days.
You would have 524,288 paisa or Rs. 5,242.88 after 20 days of using the multiplying paisa technique. Still, it is nowhere near a 1 Crore rupees. Let us now wait another 10 days to observe the true might of money increasing.
So, after 30 days of using the multiplying paisa method, you will have 536870912 paise, which is equal to Rs. 53,68,709.12, which is nothing but Rupees Fifty three lakhs sixty eight thousand seven hundred and nine. This implies that if you double this for one more day, you would have Rs. 1,07,37,418.24 on the 31st day, indicating that your multiplying paisa was able to generate more than one crore in just 31 days.
Even if you invest the 1 Crore received on Day-1 and invested it in an income producing asset of 15% (which is an ambitious target for one month return though!), you will still generate Rs. 1.01 crore at end of 31 days Vs Rs. 1.07 Crore generated in the paisa multiplication method.
This is the power of compounding: 1 paisa doubled every day for the next 31 days becomes more than Rs. 1 crore. I am not here to say which one is the bigger option. Rather, the ultimate point that I mean to say here through this blog-post is that if you keep doing something every day, even if it is very small, it will create a bigger positive impact in your life. In our daily lives, we often overlook the power of compounding. Hence if you continuously save money, you will be competent to fix the bulk of your financial concerns.
