The Compound Effect

What if we could shift our life from linear to exponential?

It sounds like a lot of work, but it may be more straightforward than it first appears.

The surprising difference is a matter of Time-Horizon.

The answer is not intuitive, and we often ignore its potential because of its uninteresting and lacklustre appeal.

How powerful is the force of compounding?

If you manage to get on the right side of the compounding equation and build momentum, nothing can stop you.

Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things. - Charlie Munger

If a steam engine train is standing still, a small wooden block will stop it from moving at all, and a significant amount of force would be required to start the locomotive in motion.

Once the train picks up a critical speed, not even a brick wall could stop it in its tracks.

If you are not the one pushing the train to get it moving, you might end up being the one who gets run over.

It is In Your Best Interest

Most people take the idea of compound interest and associate it with money.

Warren Buffet is one of the kings of compounding money and is well known for his wild success as an investor.

The exciting fact is that Buffet has not generated the most outstanding percentage returns consistently.

His extraordinary net worth owes to the fact that he has been consistently investing since he was an adolescent.

He gave his money time to work for him.

As you can see from the graph below, the real magic occurred after Buffet turned 50 years old, having committed to investing consistently for 40 years.

Not All About Money

The compounding effect also applies to our life skills and pursuits.

Warren Buffet said "The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd."

In the end, our habits will far outweigh any other success metric in the long run.

Truly wealthy people know that behaviour is more important than what you know.

Small, but regular good habits will eventually add up if given enough time.

Small Things Accumulate

Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't… pays it. - Albert Einstein

Let's say you spend $20 a day on food and put it on a credit card that you regularly pay 10% interest. After five years, you have paid $10,608 just on interest alone.

A similar pattern emerges when we closely analyse some of our life choices.

Our decisions add up over time.

A person does not become overweight from an all-you-can-eat session at the buffet after gorging on desserts. Instead, they get there incrementally over time.

The small choices that you make on a regular basis to have that extra scoop of ice cream. Such are the consistent habits and actions that will determine your outcomes in the long term.

It’s worth noting that things and activities you choose not to do will be just as important over time.

How To Start The Snowball Effect

Many of us spend our entire life rolling a snowball up a hill.

We push harder as we ascend higher.

Once we finally achieve our goal of getting to the peak with a critical mass, we end up in trouble.

Unfortunately for us, we end up on the downward slope of the hill as our exhausted frame is flattened to a pancake.

Most of us go wrong when we think we can create a new habit and decide to go all-out.

If you have ever failed at a new years resolution (which is all of us), you know that it's easy to lose steam.

We often get tired from overdoing because, in the beginning, it seems easy to stay committed.

It is much better to develop habits that you know you can follow through o