Exponential
“If the sun were hollow, you could pour a million earths into its volume and still have room left over. Let’s not stop there. In five billion years when the sun dies, it will pass through a phase called Red Giant…. At that size, the sun has ballooned to ten million times larger than it is now…. The cosmic perspective, it’s spirit energy, derives from embracing these astronomical scales of measure.” (Starry Messenger, Neil deGrasse Tyson).
DeGrasse Tyson’s book, which I wrote about last week in regards to pulling back the lens and ‘zooming out’ our perspective on life and earth’s inhabitants – brings up interesting points about these ‘astronomical scales’ of measure. These scales of measure are mind- boggling when considering our Universe and all things greater than us. Reading about them is a lesson or reminder that we often – if ever – don’t think big enough.
To bring more of a relatable context to this, he talks about exponentials with numbers – money, specifically, and the relevance with compounding money. An example from the book (page 25), is: would you choose to receive $5 million now, or receive a penny a day doubled for a month. If you choose the pennies doubled, on the last day, you would be given $10,737,418.24. And the total including all that you had been given on the previous days would add up to $21,474,836.47.
I find this so fascinating. I actually did get out a sheet of paper and write out the 31 days and see it for myself. First of all, I like the visual, second of all, I can’t just take someone’s word for it. Yes, it’s in a book, and a book by a scientist, no less, but I like to know.
And then, I am simultaneously reading another book. ‘The Psychology of Money.’ (Morgan Housel). I generally have two or three books on the go. Of course in a book about money, it can’t surprise you that there is a section on compounding – that Warren Buffet’s success is how many years he has been investing. He started at age 10. From page 50: “Effectively all of Warren Buffet’s financial success can be tied to the financial base he built in his pubescent years and the longevity he maintained in his geriatric years. His skill is investing, but his secret is time.”
As they say, linear thinking, is more intuitive than exponential thinking. Which is why most of us think in a linear way and are a bit mind-blown when seeing – or maybe more importantly, appreciating – the power of exponentials. Sure, I remember seeing charts when I was younger: if you start saving so much per month at a younger age, you end up with way more money. But maybe the appreciation of it happens later. Maybe it seems unimportant when you are young and would like to spend what money you have. Or it seems out of reach.. thinking 50 – 70 years into the future, when your future self will benefit. I guess it’s all of those reasons. I certainly wish I had the full appreciation of this knowledge when I was younger.
I hope to instil those saving habits with my boys so they can save on a regular basis. I have found that once you start saving a small amount regularly, you get excited seeing it grow. Before you know it, you think of ways you can trim spending somewhere to make that little savings each month slightly higher. It grows slightly quicker than before, so then you look at what could be sacrificed (dinner out? New shoes?) and you get eager to add that to the savings. So in this way, it becomes apparent that even thoughts towards savings compound. Bit by bit, you ‘find’ more and more and you get growth on savings growth.
Of course there is LOTS more to the psychology of money, so in respect to teaching the younger generation that – compounding is relevant because:
a) time really does go fast, blink, and life goes by, and b) their future selves will absolutely thank them – so they may as well start while they have no bills (or very little in the way of bills, our older son has a cell phone). So far, with his job, he is putting 10% aside for his future and 10% aside into a ‘car’ account. He is loving seeing those balances grow, and quite proud of it. And I hope this foundation will be something he looks back on years from now as the beginning of his future wealth.
Sending Love,
Devon