The Compound Effect: Transform Your Life – Easily!

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Wealth. Success. Fitness. You want to achieve something amazing, but every time you start you’re overwhelmed by the long, difficult road you have ahead of you. You see other people that find overnight successe, maybe even your friends, and you wonder, “What gives?! What do they have that I don’t?” The answer is most likely the Compound Effect.

You’re Talking About Compound Interest, Right?

Ah, compound interest – the thing that Albert Einstein supposedly called “the most powerful force in the universe”. Compound interest is definitely an example of the compound effect in action, this is true. What might surprise you, though, is that compounding is not limited to finances!

Circling back to those “overnight successes” I mentioned earlier – unless they were extremely lucky, they were making progress toward their goals for months, if not years, before they appeared to have hit the jackpot. But how? Did they have willpower that most people don’t have? Did they have a trust fund to fund their endeavors? Were they geniuses?

…Maybe. But it’s more likely that they were leveraging the compound effect with some variation of the steps we’ll outline today. Before we get to them, though, let’s review the most familiar example of the compound effect.

Compound Interest Refresher

Compound interest is the “interest you earn on your interest”. Let’s say you’re looking at an index fund that provides a 7% annual return. You invest $10,000 into that index fund with no additional contributions, leave it alone for a year, and boom! At the end of that year the value of your investment has grown to $10,700. If you leave that money alone for another year, that 7% return is applied to the $10,000 you had initially in addition to the $700 you made in interest, winding up at a value of $11,449. This continues on, ad infinitum.

To simplify, let’s look at a chart documenting what compound growth does to a $10,000 investment over 30 years at a 7% return. How much money do we have at the end of the day?

$76,122.55! Not bad, right?

Well, we can do better. Consider the fact that the calculation assumes you never put any more money in that account. What if you contributed an additional $1,000 per month for those 30 years? Let’s run the numbers again.

WHOA. $1,209,651.99 (in future dollars) is no joke! This is the magic of compounding – consistent contributions over time that build up to something amazing. And this doesn’t even account for any earnings increases you received along the way, which would have allowed you to invest even more money!

All right, now that we’ve discussed how amazing compound interest can be, let’s talk about how to broaden the idea.

What Can The Compound Effect Be Applied To?

You can apply the compound effect to anything. No, really – anything. Do you want to have a better marriage? Become an expert on a topic? Learn an instrument (or 10)? All of this and more can be accomplished easily as long as you’re consistent, and I’ll tell you exactly how.

Small Steps Lead to Big Changes

Let’s riff for a second here. Let’s say you’re all fired up about an ambitious idea and you’re ready to get to it! You start researching all the work and time you’ll need to put in and…wow, this is a lot. Regardless the goal – getting your advanced education degree, losing 20 pounds, building up to $1M+ in net worth, starting your own business, getting your dream job – the end goal may very well seem daunting and unattainable when the comes time to get started.

But it doesn’t have to feel overwhelming – you just need to build the right habits and routines that will lead you to success.

Small Habits = Small (Successful) Steps

Small habits, followed consistently over a long period of time, will compound and provide you with incredible results! But building new habits can be frustrating if you don’t break down the steps and potential hurdles. You know what you want to do, and you’ve done it a few times, but then for some reason you just… can’t.

I’ve been there – waking up to work out at 5am every day is great until the night comes where you only get 3 hours of sleep. Without strong habits to fall back on, the snooze button looks reeeeeeally good and is just a small reach away. It’s so easy to tap it – just once, then you’ll get up…right?

The key to making sure you can still do what’s needed is to set yourself up for success. How? Let’s look at waking up every day for a 5am workout as an example. What do you need in order to wake up that early every day?

• Enough sleep (at least long-term). What is “enough sleep” to you? 5 hours? 6.5 hours? 8 hours? Plan ahead, set a bedtime, and stick to it.
• An annoyingly loud alarm set in a location where you can’t snooze all morning! Better yet, set 2 obnoxiously loud alarms. Making yourself get out of bed to shut the alarm off – by the time you’re up, it makes sense to just continue on for the morning.
• Something to get you up and running in the morning. This could be a simple glass of water, a cup of amazing coffee, or my preference: a scoop of my favorite pre-workout that kicks me into gear regardless of how little sleep I got the night before. Make sure it’s satisfying and delicious so you can feel rewarded for getting up!
• A convenient location where you can exercise. This could be as simple as the road outside for a run, or the gym down the street. For long-term savings and the ultimate convenience, I recommend looking into building out your own home gym.

This is just one example – how can you break down the steps that are necessary to meet your own goals? Write them down, and challenge yourself to really thing of all the reasons you’ll tell yourself you can’t do it – then build a solution that invalidates those arguments.

Yes, It Works! I’ve Seen The Results Multiple Times.

This all sounds good, but you’re probably wondering if the guy writing this has actually seen results. Understandable! Let’s take a look at a few of my personal goals that I was able to achieve with the compound effect.

Finish My Bachelor’s With Honors

Right out of high school, I wasn’t driven and I knew it. Instead of wasting money trying to fumble through college, I opted to work for a few years before enlisting in the USAF. My plan was to get my education paid for after I separated. I did my time, put in the work, and came out the other side far more disciplined with a clear goal in mind: finish college with a badass GPA. The compound effect allowed me to finish strong, just shy of a 3.8 GPA with a business degree from a major state school.

• How? I built great habits and removed obstacles. I set schedules to study and do my homework. I didn’t let myself get to the “fun” stuff until my work was done, and I completely avoided the social distractions that would have kept me from meeting my goal.

Become a “Reader”

I’ve always wanted to be a “reader”, but thanks to the frantic chaos that is my brain I’ve had serious difficulty sitting down to read for any stretch of time. I’d wind up reading a page, then re-reading it…then re-reading it again only to not remember what I just read 3 times. Taking advantage of the compound effect has gotten me to the point that I now read around 20-25 books every year – and I read them faster than ever while also retaining more!

• How? For the last several years I’ve ready 10 pages of a nonfiction book per day, nearly every day. 10 pages is a very small time commitment, but in the end the consistency allowed me to build knowledge and learn about so many interesting things, from psychology to investing to astronomy.

Get a 6-Pack

I’m sure most of us have had ambitions to get into shape at one point or another. I sure did – ever since I was a teenager, I wanted to be ripped but never put in the effort to properly research it. I now have that 6-pack and am working on bulking up so I can compete in a natural bodybuilding competition.

• How? Well, thanks to the effort I’ve put in to become a “reader”, I’ve read multiple books on biology, fitness, weight lifting, and nutrition. This self-education had the trickle down effect of finally understanding the fundamentals and, after experimenting to see what my body responds to, locking in the perfect mix to achieve the results I wanted. With this knowledge in hand, I built a diet and workout plan and stuck to it religiously. And I actually saw the day that the compound effect showed itself – day 53 of 75 Hard.

The Compound Effect Compounds On Itself

The interesting part here is that I didn’t have these goals from the outset – they all came organically once I built the right mindset and routines for the first. The compound effect has a funny way of snowballing (dare I say, compounding?) and providing you with more and more opportunities to become better. The way I see it, there’s no limit to what I can do as long as the proper systems are in place. But there is a huge asterisk that we need to mention.

The Compound Effect Works In Both Directions

The compound effect is amazing when working in our favor, but when it’s working against us? Well, that’s a monster you don’t ever want to deal with – small bad actions can add up to a devastating impact. A perfect example of this is consumer debt.

Credit Card Debt

The monthly credit card statement can be something to dread, for sure. You’ve just gotten back from vacation, and maybe you used your credit card as a “short-term” loan to fund the trip. The bill comes after the following cycle, and wow – you spent a lot of money! Thank goodness you can just pay the minimum payment…right?

While the smallest amount you technically need to pay to avoid defaulting is the minimum payment, that doesn’t actually protect you from the biggest danger of credit cards: that dreaded 18.68% average interest rate.

To put it into perspective, $5,000 at an interest rate of 18.68%, with a $100 monthly “minimum” payment, will result in you paying an insane total of $12,606.94 over 23 years and 10 months. Ouch. What about paying even less? At $78 per month, you’d wind up paying $26,047.34 over 33 years and 3 months. Anything less than $77.83 and you’ll literally never pay the loan off.

Lifestyle Debt

Like credit card debt, the compound effect also has the potential to affect your lifestyle negatively. For the sake of the article, we’ll call this lifestyle debt. Every action you take that is not pushing you toward your goals is pulling you from it. Think of getting in shape – if you make choices like eating a cheat meal when you shouldn’t, or putting off the exercise until tomorrow when it’s scheduled for today, you’re actively sabotaging your progress toward your goal. One time feels like no big deal, but if you make it a habit? Well, bad habits are easy to form and hard to break. That’s why I was never able to meet my fitness goals until I committed to the process and eliminated the seemingly-innocent choices (weekly cheat meals, a nightly drink) that were consistently working against me.

The key to success is eliminating your debts. Whenever making a decision that’s outside the norm, ask yourself if it’s helping or hindering your progress toward achieving your goal.

Conclusion

We made it through another one! Let’s recap.

1. Compounding is most commonly referenced with finances, but it can actually apply to nearly anything in life
2. The Compound Effect can be applied to anything
3. Small positive habits lead to huge positive progress
4. Habits require planning. Plan out the steps for success as well as the way you’ll handle the obstacles your brain will throw at you
5. The Compound Effect compounds on itself! Once you see success with one goal, it fuels the next. And the next. And the next. And the next…
6. The Compound Effect can work for you and against you. Decisions that aren’t in favor of your goal are actively working against it
7. You can transform your life with small, intentional steps if you’re consistent! It won’t happen overnight, but with the right systems in place that you enjoy, success will come and surprise you!

Sound off! Have you seen the Compound Effect work? Think this is something you’ll plan for and put into action? Let’s discuss in the comments!