Hi folks, welcome to Oregon Cash Flow Pro.
I am your cash flow consultant, James Barber,
and today we’re going to be talking about
compounding interest and the power of compounding
So, we’re going to go over the brain exercise
of ‘what does doubling a penny every day for
31 days lead to.’ Hint: lots of money!
We’ll also go over how consumption or losses
kill compounding growth. And we’ll finish
up with how you can adopt a mindset or an
attitude for growing wealth and what you can
do to increase your wealth.
Hey Lexi, would you rather have a million
dollars right now or would you rather have
me give you a penny and double it every day
for a month?
A million dollars.
Hi Alivia, would you rather I gave you a million
dollars today or a penny and double it everyday
for a month?
Ummm. Probably the penny?
What would you choose? A million dollars or
start off with a penny and have it double
everyday for 31 days?
If you’re familiar with compounding growth,
you’d probably choose the penny. Let me show
Here’s what that penny looks like. We start
off Day 1, we’ve got 1 cent. Day 2, 2 pennies,
4 pennies, 8 pennies. Doesn’t start to do
much. Even after Day 10 we’re only at five
dollars and twelve cents.
Come down here, Day 15, $163.84. Day 20, $5242.88.
We’re not moving very quickly, it seems.
But wait! Day 25, $167,772.16.
Day 26, $335,544.32
By Day 28, we pass the million dollars. One
point three million dollars.
Day 29, doubles. Day 30 doubles again.
And by Day 31, $10,737,418.24!
So, for all of you who chose the penny, good
Now, to my knowledge, there isn’t any investments
out there that are going to double your investment
every day for 31 days. Even if you started
out at a penny. But, let’s look at how consumption
kills compounding growth.
If we look at the middle column in red, we’re
still starting out with a penny a day, and
we get to day 10 and we’ve got five dollars
in there, $5.12. And we really need to go
out to eat, go buy a burger. We need to do
something and we need to spend that five dollars.
Our growth starts over the next day. We get
to five dollars again, Day 20 and we think
“well, this isn’t growing very quickly, I’m
just gonna use it, I want to go get a milkshake.”
And it starts over again, and we end the month
with $10.24, instead of $10,737,000.
Now, another way to think about it is, what
if we’re a saver. What if we start off with
more than a penny? And we get to double that.
If we start off with 50 cents, rather than
a penny, and that were to double, we end up
with $536,000,000 at the end of the month.
Clearly, none of these are very realistic.
But, there is a lesson to be learned. And
the lesson is, how do we keep our money compounding?
How do we keep our investments compounding?
The key is, we don’t take it out. We don’t
spend that money. But often times, what has
to happen is we need to access our 401k or
we need to access our savings account and
we need to break that cycle of compounding
We need to pay for college. We need to pay
for a house. We need to pay for a car. We
have to consume. We have to buy things throughout
the month in order to survive. All of that
makes it a challenge to let the compounding
growth work for us.
Here’s an illustration of what a compound
growth curve looks like. We’ve got our capitalization
time, where our money is put into it and then
the growth on growth. Our interest earns interest
and it compounds on each other, and it shoots
way up. These are the building blocks of wealth.
Consumption, right here in the middle, if
we have to pull money out of it before it
takes off on this compounding growth curve,
or really any time on this curve. If we have
to take money out of it, we start over on
a new growth curve. This is our opportunity
cost. This is what we miss out on. The difference
between here and here is our opportunity cost.
But we need to do whatever we can to not interrupt
this growth curve. Now there are ways to do
that. We do have opportunities to borrow against
our savings or our investments without actually
pulling money out.
You can do that with stocks. You can do that
with life insurance. You can do that with
secure accounts, savings accounts. Not many
opportunities of good growth while that’s
happening, but you do have the opportunity
Now on the flip side, when you’re borrowing
from those, you do have to pay some interest.
So you want to make sure that if it’s something
that you’re borrowing against, you have the
opportunity to earn at least the same amount
of interest that you’re paying to borrow the
funds or more. And when you have the opportunity
to earn more, we call that arbitrage.
Arbitrage is the difference between what I
pay to borrow money and the amount of interest
that I earn using the money that I borrowed.
Let’s look again at this compounding growth
curve. When we look here right in the middle,
this red line represents a couple of things.
It can represent withdrawing money from the
account. It can represent losses in that account.
So, if this line were the stock market or
an index fund, this line could represent losses
in that fund. And those work just like you’re
You end up on a new compounding growth curve.
Losses are to be avoided at all cost. If you
can help it. Now, sometimes you can ride out
the losses and eventually you can end up with
a pretty decent rate, but you’re still not
on the same compounding growth curve that
you were on before the losses. You had to
If you withdraw this money, You’re starting
over. Now this could also represent a life
insurance policy. And this case, you can withdraw
your money from the life insurance policy,
just like you can from the stock market. Just
like if they were losses.
Any type of withdrawal, or losses, starts
you over. Works the same in a life insurance
policy as it does in the stock market. The
only difference is, with some life insurance
policies, you’re guaranteed you’re never going
to lose any money. So the only time you have
to worry about this reduction, is if you withdraw
money from the account. If you just borrow
money against the account, you’re not interrupting
this compounding growth curve. If this is
your stocks, and you just borrow money against
those, you’re not actually taking them out,
you don’t interrupt that growth curve.
The only thing that’s going to interrupt that
growth curve, is if there’s a market loss.
So, excellent opportunities using both life
insurance and stocks at the opportunity of
uninterrupted compounding growth.
So, let’s talk about adopting a mindset, or
attitude for growing wealth. When we talk
about that, we want to consider the compounding
growth curve. What can we do, what can you
do in your life, that you can put money aside,
and not have to take that money out, in order
to let it continue to grow and compound.
My next video, I’ll go over my preferred method
for wealth building that includes the opportunity
for uninterrupted compounding growth.
Thanks for joining me today. Be sure to like
the video down below, subscribe to our channel,
so you can follow along and learn the tools
necessary for you to take control of your
Have a great day!