Compound Your Life

Many people are familiar with the term “Compound Interest” and understand its profound effects when it comes to investing. The most common example everyone uses to explain the power of compound interest is the penny doubled everyday question.

Would you rather have $1 Million today or 1 penny that doubles every day for 30 days?

If you've never had this question asked to you before then you would probably take the $1 Million. But that penny doubled every day ends up amounting to more than $10 Million after 30 days. So the obvious answer would be to wait a month and collect 10x the amount you are offered today.

Albert Einstein one time said, “Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't, pays it.”

The reason why compound interest is so powerful is because of the exponential return in value that is possible. Instead of operating on a linear curve where you are earning the same amount over and over again. Compound interest operates on an exponential curve where you are earning a bigger amount every single time.

This is how the wealthiest individuals in the world have been able to accumulate their fortune. Warren Buffet has been compounding his wealth at an annual rate of about 20% for the past 60 years. He didn't get to where he is today overnight. It took decades of doing the same things every day that lead to him become one of the richest people in the world.

Compound interest is an amazing tool in the world of money and if you are able to generate consistent returns over time just like Buffet has, then you can make a fortune as well. But what I want to focus on in this post is the power of compounding in other areas of life.

Your financial results are not the only thing subject to the rule of compounding. You can apply compound interest to any other area of your life. Your results in life all come down to your habits. Your thinking habits, your eating habits, your sleeping habits and so on. What you do over and over again will determine who you are and how your life turns out.

It is crucial to truly take an assessment of the habits you have developed over the years. These habits are either setting off a positive compounding sequence or a negative compounding sequence in your life.

People think the results they get today were from the actions they took today. When in reality, the results you get today were from the actions you took months or even years ago. By the time you get results, you can't even remember the actions you took to get those results.

As James Clear puts it in his book Atomic Habits, “Your outcomes are a lagging measure of your habits. Your net worth is a lagging measure of your financial habits. Your weight is a lagging measure of you're eating habits. Your knowledge is a lagging measure of you're learning habits. Your clutter is a lagging measure of you're cleaning habits. You get what you repeat.”

We all like to do things that give us instant results. You eat junk food and instantly satisfy your pleasure centres. You go on Instagram and get an instant dose of dopamine. You smoke a joint and you instantly feel good.

These actions aren't necessarily bad when done once. But done over and over again to a point where they become a habit is where the problem lies. You kick off a negative compounding sequence that will only get worse as time goes on. You are effectively using the law of compounding against you.

What we want to do is put the law of compounding to work for us by doing the things that don't give us instant gratification now or would even make us feel uncomfortable in the short term.

Going to the gym makes a lot of people feel uncomfortable in the moment. But once you've built a habit of going to the gym over time, you will reap the rewards and see the results. Meditating feels stupid for people who are doing it for the first couple of times. But the real value comes from making it a habit and doing it consistently.

The big results people want in their life don't happen in one day or one week. They happen over months even years. Having the awareness of knowing that the results will be tiny at first and massive at the end will help you stick to the process and stay consistent. The unwavering belief in the law of compounding is a key ingredient to anybody's success in anything.

Today we have it worse than ever. We live in a world where instant gratification is right at our fingertips. We are hard-wired to see a result as soon as we take an action. People are not willing to do hard work over an extended period of time without seeing results. If we don't see the result, we get discouraged and give up. That's why it's more important than ever to adopt a mindset of delayed gratification and trust the law of compounding.

I will leave you with another quote from James Clear’s Atomic Habits. It is hands down the best book for developing systems to drop toxic habits and adopt ones that put you on a positive compounding sequence. So I implore you to pick up a copy of his book.

“Making a choice that is 1 percent better or 1 percent worse seems insignificant in the moment, but over the span of moments that make up a lifetime these choices determine the difference between who you are and who you could be. Success is the product of daily habits—not once-in-a-lifetime transformations.”