Exposing the myth about the 1% gain principle

We all came across the popular and awe-strucking 1% gain principle. 

It is:

1^365 = 1, but (1.01)^365 = 37.8, a whopping 37.8 times the gain in 365 days over no gain. 

The proponents of this principle advocate that if one strives to put in 1% extra every day, in the next 365 days, they will reap 37.8 times the output they are reaping now. 

Mathematically, it seems logical, right? It's a matter of only 1% extra effort every day. Seems achievable, right?

However, there's a catch to it. The principle works on the concept of compounding. 

The amount of 1% extra effort on the 300th day is not equal to the amount of 1% extra effort on the 1st day.

Let's calculate it.

• Extra effort required on the 1st day = 1%
• Extra effort required on the 300th day = (1.01)^300 – (1.01)^299 = ~19%

A whopping 19 times more efforts are required on the 300th day than on the 1st day. 

This happens because on day 0, you are at 1, and on day 1, you need to put in 1% extra effort on 1, which is 0.01. However, on day 299, you would be at (1.01)^299 = 19.6, and on day 300, you need to put in 1% extra effort on 19.6, which is 0.196—19.6 times the effort on day 1.

Life does not have a fixed pattern. 

On day 3, you may gain 10%; on day 35, you may lose 5%; on day 100, you may gain 2%; and so on. And who knows, the loss in your perspective could turn out to be a gain in the days to come, and vice versa.

In a nutshell, indeed, one must strive for incremental gain, but seldom will your gains be exponential.

-Shalabh Jain