You probably know the effects compound growth can have on an investment over a number of years.
With a long enough time and a sufficiently high-interest rate, the growth is always impressive.
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Warren Buffett has been preaching the importance of compound interest for six decades, and it’s made him billions.
Stephen Guise writes, “All who have been educated in basic finance know this about compound interest, but far too few think about their decisions in the same way, even though it works the same way.”
The principle affects everyone the same because it depends on time.
It’s no different than planting a tree. Naturally, the tree is going to be larger when it is 50 years old than it was when it was 20 years old.
Compounding is the process where the value of an investment increases because the earnings on the investment, both capital gains, and interest, earn interest as time passes.
When we apply the compound effect in our life, it can go both ways — either we will be moving forward in life or backward.
The power of compounding can be applied to reading a book, eating healthy, spending quality time with the people you love, working out, getting up early, using a system to get things done, and changing many areas of your life.
The results are dependent on the actions we take every day.
Jeff Olson once said, “Those little things that will make you successful in life, that will secure your health, your happiness, your fulfillment and your dreams, are simple, subtle, tiny things that nobody will see, nobody will applaud, nobody will even notice. They are those things that, at the time you do them, often feel like they make absolutely no difference…like they don’t matter. But they do!”
One of my core philosophies in life is performing simple daily actions and commitments each and every day to get a little bit closer to what I want.
Daily actions, both positive and negative create a cumulative effect.
Albert Einstein once noted that the most powerful force in the universe was the principle of compounding.
Imagine you committed just ten minutes of your time to improve your life every day for an entire year.
Or better still you made just one percent improvement in your life every day.
After 365 days, your skills will compound to almost a 38x improvement from your starting level.
Conversely, a 1% decline every day (99%) will result, after 365 days, in a skill level of just 0.0255 of your starting level.
Quite a phenomenal deterioration.
Compound is one of the best ways to improve anything.
Want to become more mindful?
Practice just five minutes of meditation every day. You choose time and place.
Want to start exercising?
Start with just stretches in the morning and steadily increase time commitment and routines.
Want to build long-term wealth?
Invest just $50 into a broad-based fund every week. Once a month, I buy more shares of the Vanguard Index Fund and that’s it.
The cost is low, and the risk is also relatively low (when a company that’s on an index goes bust, it gets replaced by another one).
Compounding is like making “daily deposits” into goals, ideas, projects, people that are important to you, and watching them build over time.
It’s an amazing process if you can commit to it daily, weekly or monthly.
Acting rationally, consistently, has long-term effects
Life is a series of choices we make daily that add up to a large outcome.
Every decision is a seed planted for your future.
Good decisions…good outcome.
Bad decisions…bad outcome.
“It’s not the big things that add up in the end; it’s the hundreds, thousands, or millions of little things that separate the ordinary from the extraordinary, says Darren Hardy,” author of The Compound Effect.
Darren lays out a simple formula in the first chapter…
Small, Smart Choices + Consistency + Time = RADICAL DIFFERENCE
According to Darren, “Small, seemingly insignificant steps completed consistently over time will create a radical difference” in your life and put you on the road to the career success you want and deserve.
Compounding is not different from the 10,000-hour rule.
Malcolm Gladwell talks about it in his book best-selling book, The Outliers.
Every action has consequences on your future.
Even the simplest choices compounds.
Actions taken over time GROW.
Darren explains, “The real cost of a four-dollar-a-day coffee habit over 20 years is $51,833.79. That’s the power of the Compound Effect.”
ACTING or NOT ACTING is a decision you shouldn’t take lightly.
Anything repeated over time ultimately creates a compounded result.
There are countless actions you can take every day to reap the benefits of compounding:
Honing your skill one day at a time, reading just five pages of a great book, choosing to eat 100 calories less, working out for just 10 minutes a day, taking a few minutes walk daily, meditating for five minutes in the morning, drinking a glass of water when you wake up, getting up half an hour earlier to work on your passion project, expressing appreciation, starting a journal, saving a few dollars every month, and investing in your personal development even if it’s just a few minutes everyday, pays in the long-term.
In fact, after just a year, the difference will be huge in your life.
Cumulative discipline pays!
Some of our choices support our growth, and some don’t.
Choose your actions with care!
Simple errors in judgment, that don’t seem to make any difference today, can cost you tomorrow.
Becoming aware of your choices is the first step.
“The first step toward change is awareness. If you want to get from where you are to where you want to be, you have to start by becoming aware of the choices that lead you away from your desired destination,” writes Darren Hardy.
Making an informed choice today, not tomorrow, to mindful of your habits, actions, and decisions can change your life.
Compound effect makes all the difference in the world.
You reap what you sow; you can’t get out of life what you’re not willing to put into it.
Today is the BIG day to make decisions you will be thankful for by this time next year. You are at this point in your life because of the way you have treated every ‘today’ for decades.
To apply the principles of compound growth in your life, aim to go the extra mile by 5% in every piece of work, interaction, or action you take.
Starting today, set goals, map out a plan and commit to it every day.
You deserve to live an extraordinary life, use the power of compounding to create the success you deserve.
This article first appeared on Medium.
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