Imagine you're the recipient of an amazing windfall. The catch is, you get to decide how your “winnings” are paid out.
For the purpose of this experiment, you can choose from $2,000 cash money or a “magical penny” that doubles in value for 31 days straight. Either option will leave you with more money than you started with, but one choice leaves you a lot better off.
So, which option would YOU choose?
This is the exact question I posed when I spoke to around 100 students at my Alma Mater earlier this year. And, the group reacted almost exactly as you'd expect.
Out of around 100 students, at least 90 said they would choose $2,000 in cash with no questions asked.
Since that's a lot of money for a broke college kid, I totally get it. When you're a struggling student, a guaranteed $2,000 is a no-brainer.
But, is it really the better deal? Or, is there more to the story?
Introducing the Magical Penny Concept
By now, you can probably guess that the magical penny has a few tricks up its sleeve. And, it absolutely does. While $2,000 in the bank is a nice surprise, a quick run of the numbers should tell you which choice will leave you better off.
The crazy thing is, it's not even close!
Believe it or not, choosing a magical penny that doubles in value every day for 31 days would help you grow over $10 million dollars in riches!
Don't believe me?
I don't blame you. When I first told my wife Mandy about the magical penny concept, she rolled her eyes and said I was crazy. It was only after I ran through the numbers with her that she realized my magic penny wasn't dumb or cheap, but an absolute miracle.
You see, $2,000 is $2,000, but that money isn't growing. But, a penny that doubles in value every day? That penny will eventually explode due to the magic of compound interest. Day after day and week after week, the growth the penny achieves doubles again and again.
Over time, the doubling and compounding takes on a life of its own……leading to inconceivable amounts of wealth.
You can hear more about the experiment and the magic of compounding in this Facebook video:
How to Apply the Magical Penny Concept In Real Life
While magical pennies don't actually exist, the concept that drives them is actually very common. This story illustrates nothing more than the power of compounding anyone can gain by investing their money continuously over their lifetime.
More from GFC, Below
Unfortunately, not everyone is taught the value of investing early on. When I asked the students at my Alma Mater how much they were taught about investing while they were growing up, most people went blank. They were told they should save and invest, but few people were shown how to invest or, even more importantly, where to invest.
Most parents from the baby boomer generation and beyond learned to impart basic financial advice on their kids without including many specific details. While some solid money advice is better than nothing, the lack of specifics leaves young people without any know-how when it comes to investing or growing their money.
Obviously, I want to change that – not only for my own kids, but for anyone who wants to build the life of their dreams.
So, how can you apply the magical penny concept to your own financial life?
The answer is rather simple.
- Step 1: Save a large percentage of your income and avoid debt like the plague.
- Step 2: Take advantage of work-sponsored 401(k) options and make sure you're getting your full employer match.
- Step 3: Then, save up the money to open a Roth IRA or traditional IRA to invest even more.
- Step 4: If you have even more excess cash to invest, open a brokerage account.
Over time, the returns you get will compound on themselves over and over and over, leading to greater wealth and security than most people could imagine.
While compound interest isn't rocket science, it is magic. By investing regularly, you can grab some of that magic for yourself.
The Bottom Line
Chances are, you'll never receive a magical penny in your lifetime. However, you can absolutely get rich if you take the magical penny concept and use it to your advantage.
But, it all starts with you and how you handle your money from this day forward. Will you invest for the future, or take the quick money and run?
At the end of the day, only you can decide.