Believe it’s impossible to make one million dollars in your lifetime?

With the power of compound interest, anything is possible.

There was once a man on his deathbed. He had two sons he loved very much. The man had been very successful in his life and had a lot of money to give to his family. Because he cared for his sons so much, though, he wanted to provide one final life lesson.

“Sons,” he said. “You know I have compiled a great fortune in my life. I want to give it to you. But, I want to give you two options on how to receive it.”

“Option 1,” he said, “is to receive one million dollars in cash today. You may use it however you wish.”

“Option 2,” he said, “is to receive one penny today with the promise that I will double that penny every day for 30 days.”

“Which do you choose?”

Which option would you choose if you wanted to make a million dollars?

The sons looked at each other for a moment, sad about the circumstances that created the need for this offer, but excited about the prospect of receiving some of their dad’s riches.

The first son said, “the answer is obvious. I will take the one million dollars. I will take that money and give it to the smartest financial advisors and businessmen that I know and they will turn that one million dollars into one hundred million in no time.”

The second son said, “I will take the penny.”

The first son couldn’t believe it. “You are so stupid! Why wouldn’t you take the million dollars?”

The power of compounding

Based on their choices, the father began dispensing the wealth. The first son received one million dollars and the second son nothing, though a penny was deposited in his account.

After a week the two sons got together to talk. “How much money have you made?” the first son asked the second.

“Sixty-four cents.”

“That is ridiculous! I’ve already got my money working for me. I’ve technically only got $750,000 left because I invested the other amount, but I’m expecting a huge return on that investment.”

At the end of the 30 days the sons met again.

“How much money have you made?” the second son asked the first?

“I’ve 2.5 million dollars! I knew my investments would pay off and they did. Of course, that would have been closer to 3 million but I had to pay my advisors, some of the deals didn’t work out, but I am crushing it!”

“How much did you make?” he asked the second son.

“I checked my bank balance this morning and there was $5,368,709.12…”

What’s the moral of the story here?

Most people don’t become rich by earning a ton of money. Most people become rich by using the power of compound interest.

Compound interest is the phenomenon of the interest you make off of your money also making interest.

For example, if you have a ten percent rate of return and invest $1000 and just leave it there, this is how it shakes out:

• Year 1: $1100.00
• Year 2: $1210.00
• Year 3: $1331.00
• Year 4: $1464.10
• Year 5: $1610.51

In five years you’ve added 60% to your original investment!

The lesson here? Invest your money early (imagine if we could continue our example for 30 years), invest it in a place that gets a good return with few fees, and just leave it alone.

Cheers,

Christopher Small

P.S. Do you have kids? Have you completed guardianship paperwork? Have you done it correctly? Click here to find out what happens if you don’t do anything: Are you okay with a judge choosing the guardians of your children?

P.P.S. Do you own a business? Do you have a plan so the business, and your family, can survive if something happens to you? If not, click here to learn how simple it is to protect your business and your family from tragedy: 5 Ways to Protect Your Business from Catastrophic Failure.

P.P.S. Do you have no kids and think you don’t need an estate plan? Single and think a will is only for married couples. You couldn’t be more wrong. Click here to learn more: 5 reasons estate planning is a must have even if you don’t have kids.

Christopher Small is a Kirkland estate planning attorney who helps people get rich and live forever. He is also the owner of CMS Law Firm LLC.