I am not the first person to write about this but it is mindset that I believe in and use to great success.
Compound interest on money is powerful because when you are paid interest on your money, the amount you are paid is added to your total. This means the next time you are paid interest it is on a slightly larger amount of money than the first time. In this way, your money grows not just based on your principal, but your principal plus all the interest payments ever made on that principal.
This growth is exponential rather than linear. The thing with exponential growth though is that for a long time it looks very small, but if you stick with it, the growth is larger and faster later compared to linear growth.
What does this have to do with anything? One thing that I have learned is that this model of thinking applies to so many things beyond just money. In fact, I use this thinking on almost every project I work on.
Here are some examples to get us started. When you see someone graduating with a master’s or PhD degree, it looks almost superhuman. It is a massive achievement, no doubt, but it wasn’t all done right before graduation. It was done a little bit everyday for years. They achieved that because on a Tuesday two years ago they sat down and read a case for two hours. And the next day they worked a problem set for thirty minutes. And a few days later they met with a professor for an hour. Their small efforts compounded for years until they accomplished something extraordinary.
Here’s another example. When you are in the gym or on YouTube and watch someone lift a barbell with 500lbs on it, it defies belief. The truth is that that lift is probably only a few pounds heavier than a lift they did a few days earlier. Four years ago on a Tuesday they lifted 255lbs and a couple days later 260lbs.
In both examples, the ingredient you don’t see in the amazing results is the compounding efforts over time.
There are many things that I haven’t accomplished because I gave up too early before I understood this concept of compounding in everything.
For example, I used to do creative writing and I would submit my work to literary magazines to try and get published. For months I submitted and got rejected until finally one of my pieces was accepted and published. I stopped writing and trying to get published after this because it seemed like such a large effort for small results. The truth is that was the very beginning of compounding success that would have built on itself. Another lesson here was that I set my goal too small. Getting published in a literary magazine was too small a goal so when I reached it relatively early on, I stopped. The goal should have been much bigger like get published in the New Yorker or get a book deal or something even larger.
I feel like my work with photography and freelance web design also fall in this category of giving up after a little success , not recognizing that that success would compound.
Put your focus on the process, not the result.Mike Blessoe
When I started saving money, I didn’t pay much attention to interest rates, because the absolute value of the interest payments was so low. It is hard to get excited about $30 a year in earnings. Now a couple decades later, these small rates are getting more interesting.
I am also finding that networking is working this way for me as well.
My fiance was not surprised to see that a Spotify playlist I completed recently had songs I had added to it three years ago.
Some activities like propagating plants and growing a garden I choose specifically because of these slow compounding effects. I feel like this slow natural pace keeps me grounded in an increasingly fast paced world. Some things, the good things, take time and care.
On a final note, this whole blog is based on this concept and would not exist if I didn’t believe it. I wanted to show from the point of having an idea to start a business to actually having a running business is a long slow process of compounding efforts and decisions. At this time I don’t know exactly how it will turn out, but I know that I’ll get there.
I have not read “Atomic Habits” by James Clear but my understanding is that it also discusses these ideas.