Exponentiality

I didn't consider it in the first place, exponentiality is not something we are used to think about, and more importantly, is not something so simple for our mind to comprehend, but I believe it is super important to understand it.

I came across this definition reading a book entitled ''The price of tomorrow'' by Jeff Booth, and he gave a pretty clear example of what means exponentiality and why is it difficult for us to understand.

If I'd ask you to choose between a million $ now, and a cent that multiplicate for 30 days (0.01 x 2 x 2 x 2 x 2 etc ) which one would you choose?

Of course, if you do the math the answer is quite simple, but be honest, in the first place we would all choose the million $! In fact, if we were patient, we would have got more than 10 million $.

But you know what?

In the first 20 days, we would have earned only 10 thousand $. This is the power of exponentiality!

And so this explains why most of the time it seems that things come altogether, the reality is that we have a long journey ahead if we want to get to that point that makes the difference, and during the journey, especially in the beginning we won't notice the progress, or the successes, because they will seem small, but if we compound them over time, and we keep going, then we will really benefit from the exponential effect.

And this concept can be applied to personal finance as well, if you think about saving 100 $, over time it will compound and become a big some by retirement, especially if we are willing to invest it.

Let's suppose that we open an investment account and that in 40 years we keep saving and investing 100$ at a 6% yearly average return, it turns out that by the end we would have almost 200k saved.

Even here we see the exponential effect, in fact, it would take us 30 years to save the first 100k and just 10 years to save the other 100k.

The same happens with almost anything. The more we keep going, the more effort we put in something, the more we will obtain in the future.