You all might have heard of the term ‘the compounding effect’ but have you witnessed the power of compounding?
Here, let me share the story of Oseola McCarty. She was born in 1908 in Hattiesburg, Mississippi. At the age of 11, she had to drop-out of the sixth grade to help her mom take care of her ailing aunt. McCarty was never able to return to school and took a job as a washerwoman also known as a laundress for families that would hire her. She went on saving all the cents that she used to get in return for her services. What all she did was work and save the money in a local bank account. This continued for years until one day when she walked into the bank, the receptionist informed her that the bank manager wanted to see her. She entered the manager’s cabin who welcomes her with a smile. The manager said, “Ms. McCarthy, I would like to congratulate you, you are the biggest depositor in this bank.”
McCarty had been able to save around $280,000 by carefully saving her income.
This story signifies that anyone can start saving, compounding and literally growing money irrespective of the age factor. Her early years were an uphill battle but she ended up becoming a popular philanthropic personality. This true story evinces that the beginning may be bad, but finally, the ending is in your hands, should you decide to plan, should you decide to invest rather than hoarding or spending the money. Had McCarthy been pocketing all the coins instead of saving in the bank, it would have not have fetched such enormous value to her and benefit others.
This compounding effect is the primary reason why the rich become richer and the poor become poorer because the rich have a positive cash flow resulting in a surplus.
Now, let’s review another example of compounding.
Let’s say you are given 2 options:
- To be paid $1 every day for 30 days on a condition that $1 will be doubled every day
- To be paid a total of $1 Lakh every day for 30 days
Which one would you chose? If you said ‘option 2’, think again. Most people would choose receiving $100,000 every day for 30 days since this comes as $30 lakh at the end of 30th day and this is a gigantic amount. Isn’t it?
However, now let’s check the calculation for Rs 1 /day doubling every day.
1, 2, 4, 8, 16, 32, 64, 128, 256, 512, 1024, 2048, 4096, 8192, 16384, 32768, 65536, 131072, 262144, 524288, 10,48,576, 20,97,152, 41,94,304, 83,88,608, 1,67,77,216, 3,35,54,432, 6,71,08,864, 13,42,17,728, 26,84,35,456 and finally 53,68,70,912.
Isn’t there a mammoth difference between 53 crores and 30 lakhs? The difference, though mushroomed by doubling daily, is what we call as the magic of compounding.
This program trains you on many such secret traits that can make you a smart investor.