Savings Plan…Can You Start With A Penny?

State College, PA – If given the choice between receiving a lump sum of $1 million or a penny doubled for 30 days, I would choose the penny doubled. While the initial amount of money may seem small, the power of compound interest would result in a much larger sum by the end of the 30 days. In fact, by day 30, the penny doubled would amount to over $5 million. This option may require patience and discipline, but the potential payoff is much greater than a one-time payment $1 million. With the penny doubled, the saying “slow and steady wins the race” rings true.

The concept of doubling pennies for 30 days may seem insignificant at first, but the end result is astonishing. Starting with just one penny, after 30 days of doubling, it would amount to over $5 million. However, if given the choice between $5 million or a guaranteed $1 million, the latter may seem like the obvious option. But when considering the long-term value and potential growth of the penny doubling, it becomes clear that it holds much greater value. One million dollars may seem like a significant amount, but it pales in comparison to the potential wealth that can be accumulated through the power of compounding. This highlights the importance of long-term thinking and the potential rewards that come with it.

Ben Franklin, one of the founding fathers of the United States, had strong opinions about the penny. In 1787, he famously stated, “A penny saved is a penny earned.” This phrase has become a popular saying and is often used to encourage people to save money. Franklin believed that even the smallest amount of money should be valued and put to good use. He also argued that the penny was a necessary currency in everyday transactions and should not be abolished, despite its low value. This quote from Franklin continues to be relevant today, reminding us of the importance of being frugal and mindful of our spending.

To calculate the value of a penny saved and doubled every day for 30 days, you can use the formula for compound interest. In this case, the initial amount is $0.01 (equivalent to a penny), the interest rate is 100% (since we’re doubling the amount each day), and the time period is 30 days.

The formula to calculate the compound interest is: A = P(1 + r/n)^(nt)

Where:

A = the final amount (after 30 days)

P = the principal amount (initial value)

r = the annual interest rate (as a decimal)

n = the number of times that interest is compounded per year

t = the time period in years

In this case, we have:

P = $0.01

r = 100% = 1 (as a decimal)

n = 1 (since the interest is compounded daily)

t = 30/365 (since we’re considering 30 days out of a 365-day year)

Substituting these values into the formula:

A = 0.01(1 + 1/1)^(1*(30/365))

After evaluating this equation, the final amount “A” is approximately $5,368,709.12. Therefore, the value of a penny saved and doubled every day for 30 days would be $5,368,709.12.

How to start saving? Start with setting realistic goals. This could include creating a budget, tracking your expenses, and identifying areas where you can cut back on spending. It’s also important to establish a savings account or investment plan, such as a 401(k), Roth, or Traditional IRA, to put your money into. We here at Financial Abundance  can help you get this set up.

You may also want to consider automating your savings by setting up automatic transfers from your checking account to your savings account each month. It’s important to stay disciplined and consistent with your savings plan in order to reach your financial goals. Treat your savings like a bill. Education leads to clarity, clarity leads to confidence, and only with confidence can one obtain peace of mind.