Have you ever heard about the old riddle about the lily pad in the pond?
Namely, this lily pad, doubles in size every day and after 30 days, it entirely covers the pond. The question is on which day did the lily pond cover 50 percent of the pond?
If you immediately thought that the answer is on the 15th day, it’s not really the correct answer.
Although the mind automatically gives this answer as we’re used to linear thinking, i.e. if the pad covers the whole pond in 30 days, than half of it must be in 15 days.
So, on Which Day Did the Pond Cover 50% of the Pond?
The exact answer is that the pads will only cover 0031% of the pond on the 15th day. And, on the day 24, it would cover more than 1 percent.
This is because the lily pad’s growth isn’t linear, but exponential.
Namely, our brains are comfy with linear growth which is easy to envision and we’re pretty good at estimating a linear growth.
But, we’re less accustomed to thinking about exponential growth and thus, we fail at giving the right answer.
The Link between Lily Pads & Retirement Planning
The growth of lily pads can be compared with a retirement planning. Namely, money doesn’t double up every year-if it did, our retirement planning would be so much easy.
Still, because of the power of compounding money, it grows exponentially.
In other words, as with the lily pads, the growth in later years doesn’t only operate on the initial investment, but on all of the previous growth.
So, the growth of the money, like the size of the lily pads, is harder for us to envision. And, we often make bad estimates of how fast we think it should grow in the early years and also underestimate the growth in later years.
For example, let’s say your savings goal is 1 million dollars. You’ve been told you can reach it by saving $700 per a month for 30 years if you earn 8% annual return on your investments.
However, after 15 years of saving, when you check on your progress, you’re alarmed that the amount is less than $250,000.
You’re half way through the 30 years, however; you’re still less than a quarter of the way to the set goal. You lose your encouragement and cash your retirement and maybe even lose the money.
Why Does this Happen & Why You Shouldn’t Give Up?
Don’t lose your encouragement right away-you’re actually on the right track to meet the goal.
Because most of the growth is still in front of you-you won’t reach $500,000 until after the 22nd year; however, by 30 years, you’ll save $1,043,252.
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