When I was a teenager, I was super interested in finance. I devoured books about being frugal and saving up your money. I know, I was a bit of a weirdo. But, to me, it was fascinating!
In many ways I was still very frugal. But I spent more time trying to save big amounts of money than worrying about what to do with pennies.
It’s not that I had forgotten how important pennies are, but that I was in a season of life where managing small change was too much.
Deciding what to do with pennies
Now that I am in a different season of life, I (thankfully) get entire nights of sleep occasionally! I am ready to tackle keeping track of my pennies again.
But that doesn’t have to be as tedious as it sounds.
I think that generally, people realize that pennies do add up. Even when we are grocery shopping and we have a full cart, we are careful to choose the cereal that costs 50 cents less. Or the generic version of an item, because it saves us 10 cents.
We realize that when we are checking out, those small amounts of change will add up to a large amount of savings.
What is a penny really worth?
I once read this interesting article about the value of one penny. In it, the author discusses a $10,000 loan at an 18% interest rate. That means that you’re making monthly payments of $150.
You would never pay the loan off, because you are only paying the interest on the loan. You’re never paying anything towards the principle.
But… if you add just one penny to that monthly payment, you will have it paid off in under 54 years.
Now, paying on a loan for 54 years sounds awful, but that’s missing the point. Consider how powerful one penny can be. It takes a loan from never, ever paid off (to infinity and beyond!) all the way down to 54 years. If you compare those two, it’s pretty amazing.
What’s the point?
The point here is that every penny you pay towards debt is one less penny with interest compounded on it. Those few pennies you’re spending to supersize your meal could instead be turned into a powerful repayment plan.
Brace yourself for some math
(Ok, I am not a big fan of math. You may be more ambivalent towards the subject.)
One night my husband* asked our boys if they would rather have a million dollars or one penny doubled every day for a month. One of the boys immediately said he’d choose the million dollars, but the others knew there must be a trick here.
(*I don’t mean to imply that my brilliant hubby made this one up. It’s a fairly popular premise and you may have heard this at school once upon a time yourself. If you haven’t heard it before, then feel free to think that he is a genius. I’ll be sure to forward all fan mail to him.)
Aha, there is a trick! That wimpy little penny turns out to be pretty powerful.
If you were smart enough to choose the penny doubled, you’d have a tidy sum of $10,737,418.24 in the end.
And you were going to settle for $1,000,000!
Pennies in the real world
Just in case you never face a tough situation like having to choose between a million dollars and a penny doubled over a month (although if you have experienced that, please tell me your story!), let’s talk about how this applies in the real world.
When you’re faced with a mountain of debt, it’s easy to be discouraged. It might feel like you will be paying on debt for the rest of your life.
Instead of feeding those thoughts and emotions, remember that every penny you can find to send towards your bills is another tiny step towards being out of the bonds of debt.
That means that choosing to not buy that bag of candy that you found on clearance for just 25 cents is really a victory in your debt pay off plan.
Put that quarter with the others you saved by avoiding overdue fines or collecting change in your pocket instead of losing it in your car.
Enough of those pennies put together can become powerful.
And it isn’t just the pennies themselves, but the new mindset you’ve given to yourself. Each small purchase you choose to make matters.
Some days, buying that candy bar is just another silly splurge. Choosing to put that small amount of money towards debt instead will make you feel great.
Then, on the rough days when you really need that candy bar, it will taste sweeter knowing that you made the honest decision that it was worth your hard earned money.
And that’s how you make your pennies powerful.
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If you find a penny on the ground, do you usually pick it up?