Master Your Card

Albert Einstein once said that Compound Interest was the most powerful force in the universe. If (like me) you have a rather hefty amount of revolving credit card debt, you’ll know this expression to be painfully accurate. What we often forget, however, is that the awesome power of compound interest can work for us as well as against us.

While reading through The Armchair Economist, I stumbled across a hypothetical question Levitt asked his readers to illustrate the power of compound interest:

You are offered a temporary job for thirty days. You have to choose between two different payment plans:

1) $1,000 a day for thirty days, or

2) A penny for the first, day two cents for the next day, four cents for the third day, and so on for the duration of the thirty days.

Which would you choose? The first plan makes you $30,000, not bad by anyones standards. As it turns out though, after doing the math you’d be kicking yourself if you picked this over the second option - a daily wage of a penny that doubled every day for 30 days would net you a total of $10,737,418.23. Yeah, you read that right - over ten million dollars.

Now granted you won’t find many banks that will offer you 100% a day, but the point remains - a little bit sensibly invested will grow to a huge sum over time. Start contributing just that little bit extra to your savings sooner rather than later - trust me, you’ll thank yourself for it later.