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A smart businessman once went to a busy kitchen at a local restaurant to make a deal with the owner. He had a contract that said he would be willing to work for one month as a dishwasher. Instead of being paid a regular wage, the businessman had a different proposition.
The owner immediately agreed and signed a contract thinking that this was an insane businessman. So the businessman came to work the first day and worked very hard for his penny. The next day, he was paid 2 cents. The day after, the owner paid him 4 cents and so on.
All this time, the owner was laughing behind the businessman's back thinking he was a fool. Little did he know about the power of compounding.
The owner started getting worried on the 15th day when he realized he had to pay the businessman $327 for one days work. By the 25th day, the owner had to give his restaurant to the businessman because he couldn't afford to pay him the $300,000 that the penny had compounded to.
If the owner had still been able to afford the businessman's wage, he would have paid him over $10,000,000 on the 30th day.
The moral of the story? Don't underestimate the power of compounding. As you can see, compounding didn't do much for the first few days but towards the end, the amounts that the penny had accumulated to is simply amazing! This is exactly what happens with money that you invest. You may not notice a big difference at first, but as the years go on, the effects of compounding will surprise you!
He would be willing to work for 30 days as a dishwasher if the owner paid him a penny on the first day. Each day he came to work, he would only ask to double his wage from the previous day. (This means that his wage would be compounded 100% per working day).
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