What if a flower seller on the pavement in India saved ₹ 5 of her earnings every day?
A couple of behavioural scientists explored this question while studying flower sellers in Chennai’s Koyambedu market. The poor vendors sold flowers on the roadside with little more than a carpet or a blanket to sit on. Everyday, they bought flowers for about ₹ 1000 and sold them for ₹ 1100, making a daily profit of ₹100.
Most of these vendors took a daily loan for the ₹ 1000 they used for buying flowers in the early hours of each morning. This loan had a steep rate of interest – 5% per day! Therefore, the mere interest on this daily loan claimed ₹ 50 of the flower seller’s profit every single day, leaving her with only ₹ 50 as her net earnings.
The researchers, while undoubtedly empathetic, also explored this problem with their cold and rational minds. They wondered what would happen if the vendor saved ₹ 5 everyday. How long would it be until they were free from the obligation of having to borrow daily, and thereby get to keep all their earnings?
While you might think that the answer is 200 days, in reality, it is merely 50 days. If the vendor saved ₹ 5 on the first day and reinvested it into buying flowers, she would only need to borrow ₹ 995 the next day. A 5% daily rate compounds quickly. By doing this everyday, she could be out of debt four times faster than our intuition tells us.
This example attests to the power of daily compounding. Instead of ₹ 5, what if you spared 5 min in an enriching daily habit? 5 min a day, like₹ 5 a day, doesn’t seem like much. But keep up this habit, and chances are that you would would get to your destination 4 times faster than you thought you could.