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We Are What We Repeatedly Do
“Good and evil increase at compound interest. That's why the little decisions we make every day are of infinite importance.” - C. S. Lewis
I once dated a super hot girl. On one of our outings, we discussed our interests, likes and dislikes, and…apparently…our favorite books, and we discovered a shared love for Darren Hardy’s book, The Compound Effect. Its message (that success results from the compounding of small, smart choices) resonated with both of us. Obviously I couldn’t let such a hot and wise chick get away! Thankfully she stayed and a year later became my beautiful wife.
When most of us think of compounding, we think of it in the context of financial savings and investments. In reality, it’s a powerful force with an infinite array of applications. In fact, Albert Einstein is purported to have said, “compound interest is the eighth wonder of the world.” In this article, I hope to show that the compound effect is an effective mental model in decision making and a powerful friend (or foe) in habit forming. If Einstein is correct, and compounding is such a powerful force, I think its necessary for all of us to better understand it…and its applications.
Since the majority of people are familiar with compounding within a financial context, let’s begin our discussion there. As with many things in finance, compounding is best explained through an example and graphs. Therefore, lets imagine you invest $100 in your favorite company’s stock. If the stock market has average years, your stocks’ value will increase at a rate of eight percent each year. In this case, your $100 investment grows to $108 after the first year, $116.64 after the second year, and $125.97 after the third year, etc. Because each year’s growth builds upon the growth from the previous year, the growth accelerates annually. That’s the power of compounding.
The graph below visualizes our example. It shows that one hundred dollars, compounded at a rate of eight percent per year, for twenty years, would grow into more than four hundred dollars ($466.10 to be exact). The green line depicts this increase:
To better understand the mechanics of how compounding works, it’s helpful to break it down into it’s three critical components: starting amount, rate of increase, and time. An increase in any of these three components will increase the end balance. That said, each component does not effect the compounding equally. Take a look at the following graphs to discover how an increase in each component separately affects the end results to greater and lesser degrees.
By doubling the starting amount ($200 instead of $100) the end balance is $932.19:
By doubling the rate of return (16% instead of 8%) the end balance is $1946.08:
And by doubling the number of years of investment (40 years instead of 20 years) the end balance is $2172.45:
Although all three components had a positive impact on the end balance, you can notice that time has the largest impact. In addition, while it’s possible to increase the end balance by starting with more money, or a larger annual rate of increase, those two components are often out of our control. We may not have more money to invest, and it’s definitely not easy to increase the rate of your return (to do that with regularity requires years of dedicated learning and skill). But all of us can begin early (or now). Time, in conjunction with the compound effect, is the investor’s best friend. But as I hinted at earlier, it’s not just investors and financial gurus who can capture the power of compounding.
One of the goals of The Intrepid Life is to encourage and enable critical thinking. It’s something we’re hardly ever taught but are expected to perform. This newsletter advocates using mental models (simple expressions of fundamental truths) as tools to develop better critical thinking skills. The compound effect is one such mental model everyone can employ.
It may not appear obvious at first, but the compound effect is at play behind much of the wisdom of our parents and mentors. Consider the following common advice: “invest early,” and “put the work in while you’re young,” and “build good habits at an early age.” Or think of how many times you’ve heard: “patience is a virtue,” or “delayed gratification is better than instant gratification,” or “there’s no better time than the present.” Personally, I’ve heard all these things a lot. But it took me reading Darrin Hardy’s book, The Compound Effect, to realize that compounding was at the core of this sound advice. In his book, Hardy defines the compound effect as:
“the principle of reaping huge rewards from a series of small, smart choices.”
Internalizing this concept will help us make better decisions by reminding us that most good things take time to grow.
We need reminders because we live in a culture of fast food, microwaveable-everything, same-day delivery, and flagrant instant gratification. Living a life that takes advantage of the compound is hard. But it’s worth it. So when you’re next tempted to sow your wild oats while young, or to buy now and pay later, or to take a shortcut, take a pause and give it some time. Perhaps more than in any other area of life, it’s in the creation of habits where compounding is most impactful and its rewards most plentiful.
When I first read The Compound Effect I was young, fresh out of college and at the start of an exciting career. I wanted to be successful. Hardy laid out a path to success that was achievable to a guy like me (never the smartest guy in any group). And when I reread the book this past week, I still felt the same way I did years ago - I felt that implementing the compound effect is both doable and challenging.
The compound effect is an operating system that requires making small, smart choices, consistently. Small…that’s easy. Smart…that’s doable with a lot of learning, advice from others, and the Bible. Consistent…now that’s challenging.
I’m probably not alone in thinking that constancy is the Achilles heel of practicing good habits. We have so many distractions in our lives. So many responsibilities. Our lives are so hectic and irregular. And Netflix is so addicting! And all too often good habits slip to the wayside.
I believe an actionable fix to this problem is building a quality morning routine. John Maxwell, himself an author of excellent personal development books, had this to say about daily routines:
“You will never change your life until you change something you do daily. The secret of your success is found in your daily routines.”
So why is a morning routine the magic fix? Well, I didn’t say it’s magic, or easy, but it’s very effective. The number one reason it’s effective is because, for those of us with busy lives and nine-to-five jobs, the morning is the only time of the day we have even a chance of controlling. Although it may suck, you can always get up earlier to execute your morning routine. Remember, not easy, but effective.
And because you can control that time, you can use it to do the things that are most important to you and most impactful for your growth. Things like meditation, prayer, exercise, reading, stretching, and cold showers. Maybe those don’t make it on your list (they’re on mine), but make your own list, stick to it, and you’ll find this one change can alter the rest of you day, and the rest of your life.
Be aware that habits are funny things. Some can make you successful and others can bankrupt you. Some can make you healthy and others can kill you. Some can build strong relationships and others can destroy every relationship you have. And unfortunately the compound effect works both on good and bad habits. It can take you from one level of success to the next, or from one level of bondage to the next one down. It’s important to build healthy, helpful, good habits.
In The Compound Effect, Hardy illustrates this point with a hypothetical story of three friends. The first friend implements small (at first unnoticeable) good habits in his life. Those changes after much consistency, produce massive outperformance and positive repercussions. The second friend makes no changes to his life and remains stagnant. The third friend picks up small (at first unnoticeable) bad habits which negatively affects the rest of his life. This instructive illustration is represented below:
But the exciting thing about habits is that in combination with the compound effect a single, small positive change can have massive impacts that spread to the rest of your life. Hardy says:
“The slightest adjustments in your daily routines can dramatically alter the outcomes of your life. Again, I’m not talking about quantum leaps of change or a complete overhaul of your personality, character, and life. Super small seemingly inconsequential adjustments can, and will change everything.”
As I mentioned in the last newsletter, I’m learning and growing through what I write about as much as I hope you are. This month my challenge for myself is to add a habit of daily, one minute long, cold showers. I’ve done a 100 day cold shower challenge before and I loved it. My goal this time around is to make it part of my daily morning routine going forward.
How about you? Do you have a morning routine? If not, I challenge you to make one. Start small by choosing one easy activity that you can and will do consistently every day and make it a habit.
How else can you apply this concept in your life? Are there habits that you’ve regrettably picked up over the years? How do you spend your time? Habits will be formed whether you are intentional about it or not. Has your life slipped into grooves you wish it hadn’t? Don’t read this article and move on with your day without thinking about how the compound effect, and particularly habits, are helping or hurting your life.
If nothing else, I hope you now better understand what compounding is and how it works. More importantly, I hope you have a higher appreciation for the power of the compound effect and how it can dramatically change your life; for better or worse. Remember what Aristotle said, “we are what we repeatedly do.” We are not what we think. We are not what we hope to do. We are what we do.
Now get out there and courageously live an unsafe, but good life.
If you found this article helpful, please do me a HUGE favor by simply clicking the LIKE button. A one second investment of your time can pay big dividends to the work I’m trying to do with The Intrepid Life!
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit theintrepidlife.substack.com
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By OCO“Good and evil increase at compound interest. That's why the little decisions we make every day are of infinite importance.” - C. S. Lewis
I once dated a super hot girl. On one of our outings, we discussed our interests, likes and dislikes, and…apparently…our favorite books, and we discovered a shared love for Darren Hardy’s book, The Compound Effect. Its message (that success results from the compounding of small, smart choices) resonated with both of us. Obviously I couldn’t let such a hot and wise chick get away! Thankfully she stayed and a year later became my beautiful wife.
When most of us think of compounding, we think of it in the context of financial savings and investments. In reality, it’s a powerful force with an infinite array of applications. In fact, Albert Einstein is purported to have said, “compound interest is the eighth wonder of the world.” In this article, I hope to show that the compound effect is an effective mental model in decision making and a powerful friend (or foe) in habit forming. If Einstein is correct, and compounding is such a powerful force, I think its necessary for all of us to better understand it…and its applications.
Since the majority of people are familiar with compounding within a financial context, let’s begin our discussion there. As with many things in finance, compounding is best explained through an example and graphs. Therefore, lets imagine you invest $100 in your favorite company’s stock. If the stock market has average years, your stocks’ value will increase at a rate of eight percent each year. In this case, your $100 investment grows to $108 after the first year, $116.64 after the second year, and $125.97 after the third year, etc. Because each year’s growth builds upon the growth from the previous year, the growth accelerates annually. That’s the power of compounding.
The graph below visualizes our example. It shows that one hundred dollars, compounded at a rate of eight percent per year, for twenty years, would grow into more than four hundred dollars ($466.10 to be exact). The green line depicts this increase:
To better understand the mechanics of how compounding works, it’s helpful to break it down into it’s three critical components: starting amount, rate of increase, and time. An increase in any of these three components will increase the end balance. That said, each component does not effect the compounding equally. Take a look at the following graphs to discover how an increase in each component separately affects the end results to greater and lesser degrees.
By doubling the starting amount ($200 instead of $100) the end balance is $932.19:
By doubling the rate of return (16% instead of 8%) the end balance is $1946.08:
And by doubling the number of years of investment (40 years instead of 20 years) the end balance is $2172.45:
Although all three components had a positive impact on the end balance, you can notice that time has the largest impact. In addition, while it’s possible to increase the end balance by starting with more money, or a larger annual rate of increase, those two components are often out of our control. We may not have more money to invest, and it’s definitely not easy to increase the rate of your return (to do that with regularity requires years of dedicated learning and skill). But all of us can begin early (or now). Time, in conjunction with the compound effect, is the investor’s best friend. But as I hinted at earlier, it’s not just investors and financial gurus who can capture the power of compounding.
One of the goals of The Intrepid Life is to encourage and enable critical thinking. It’s something we’re hardly ever taught but are expected to perform. This newsletter advocates using mental models (simple expressions of fundamental truths) as tools to develop better critical thinking skills. The compound effect is one such mental model everyone can employ.
It may not appear obvious at first, but the compound effect is at play behind much of the wisdom of our parents and mentors. Consider the following common advice: “invest early,” and “put the work in while you’re young,” and “build good habits at an early age.” Or think of how many times you’ve heard: “patience is a virtue,” or “delayed gratification is better than instant gratification,” or “there’s no better time than the present.” Personally, I’ve heard all these things a lot. But it took me reading Darrin Hardy’s book, The Compound Effect, to realize that compounding was at the core of this sound advice. In his book, Hardy defines the compound effect as:
“the principle of reaping huge rewards from a series of small, smart choices.”
Internalizing this concept will help us make better decisions by reminding us that most good things take time to grow.
We need reminders because we live in a culture of fast food, microwaveable-everything, same-day delivery, and flagrant instant gratification. Living a life that takes advantage of the compound is hard. But it’s worth it. So when you’re next tempted to sow your wild oats while young, or to buy now and pay later, or to take a shortcut, take a pause and give it some time. Perhaps more than in any other area of life, it’s in the creation of habits where compounding is most impactful and its rewards most plentiful.
When I first read The Compound Effect I was young, fresh out of college and at the start of an exciting career. I wanted to be successful. Hardy laid out a path to success that was achievable to a guy like me (never the smartest guy in any group). And when I reread the book this past week, I still felt the same way I did years ago - I felt that implementing the compound effect is both doable and challenging.
The compound effect is an operating system that requires making small, smart choices, consistently. Small…that’s easy. Smart…that’s doable with a lot of learning, advice from others, and the Bible. Consistent…now that’s challenging.
I’m probably not alone in thinking that constancy is the Achilles heel of practicing good habits. We have so many distractions in our lives. So many responsibilities. Our lives are so hectic and irregular. And Netflix is so addicting! And all too often good habits slip to the wayside.
I believe an actionable fix to this problem is building a quality morning routine. John Maxwell, himself an author of excellent personal development books, had this to say about daily routines:
“You will never change your life until you change something you do daily. The secret of your success is found in your daily routines.”
So why is a morning routine the magic fix? Well, I didn’t say it’s magic, or easy, but it’s very effective. The number one reason it’s effective is because, for those of us with busy lives and nine-to-five jobs, the morning is the only time of the day we have even a chance of controlling. Although it may suck, you can always get up earlier to execute your morning routine. Remember, not easy, but effective.
And because you can control that time, you can use it to do the things that are most important to you and most impactful for your growth. Things like meditation, prayer, exercise, reading, stretching, and cold showers. Maybe those don’t make it on your list (they’re on mine), but make your own list, stick to it, and you’ll find this one change can alter the rest of you day, and the rest of your life.
Be aware that habits are funny things. Some can make you successful and others can bankrupt you. Some can make you healthy and others can kill you. Some can build strong relationships and others can destroy every relationship you have. And unfortunately the compound effect works both on good and bad habits. It can take you from one level of success to the next, or from one level of bondage to the next one down. It’s important to build healthy, helpful, good habits.
In The Compound Effect, Hardy illustrates this point with a hypothetical story of three friends. The first friend implements small (at first unnoticeable) good habits in his life. Those changes after much consistency, produce massive outperformance and positive repercussions. The second friend makes no changes to his life and remains stagnant. The third friend picks up small (at first unnoticeable) bad habits which negatively affects the rest of his life. This instructive illustration is represented below:
But the exciting thing about habits is that in combination with the compound effect a single, small positive change can have massive impacts that spread to the rest of your life. Hardy says:
“The slightest adjustments in your daily routines can dramatically alter the outcomes of your life. Again, I’m not talking about quantum leaps of change or a complete overhaul of your personality, character, and life. Super small seemingly inconsequential adjustments can, and will change everything.”
As I mentioned in the last newsletter, I’m learning and growing through what I write about as much as I hope you are. This month my challenge for myself is to add a habit of daily, one minute long, cold showers. I’ve done a 100 day cold shower challenge before and I loved it. My goal this time around is to make it part of my daily morning routine going forward.
How about you? Do you have a morning routine? If not, I challenge you to make one. Start small by choosing one easy activity that you can and will do consistently every day and make it a habit.
How else can you apply this concept in your life? Are there habits that you’ve regrettably picked up over the years? How do you spend your time? Habits will be formed whether you are intentional about it or not. Has your life slipped into grooves you wish it hadn’t? Don’t read this article and move on with your day without thinking about how the compound effect, and particularly habits, are helping or hurting your life.
If nothing else, I hope you now better understand what compounding is and how it works. More importantly, I hope you have a higher appreciation for the power of the compound effect and how it can dramatically change your life; for better or worse. Remember what Aristotle said, “we are what we repeatedly do.” We are not what we think. We are not what we hope to do. We are what we do.
Now get out there and courageously live an unsafe, but good life.
If you found this article helpful, please do me a HUGE favor by simply clicking the LIKE button. A one second investment of your time can pay big dividends to the work I’m trying to do with The Intrepid Life!
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit theintrepidlife.substack.com