Forget 3 wishes. It’s time to shine your magic wand.
Fairy tales are my favorite. When I was growing up we had a large burgundy set of encyclopedias called “The Books of Knowledge”.
I grew up on a farm with no T.V. so hours spent playing outside ended with our noses in books. We read the book with the fairy tales and myths the most.
And of course we dreamed of magical kingdoms where wishes come true.
As adults we understand that there are no fairy godmothers.
Or genies living in bottles waiting to grant 3 wishes. Certainly we’re beyond kissing a frog.
But regardless, there are days when I engage in ‘magical’ thinking. And I can’t be the only one.
So what if I told you that you have a magic wand.
You just need to dust it off, shine it up, and start using it. There are a couple of conditions though. Because, unlike the magic wands of Cinderella, this magic wand operates when used consistently over time. And that’s why it’s easy to forget about.
With compound interest in hand, anything is possible
Though disputed, Einstein is often credited for saying that compound interest is the most powerful force in the world.
Compound Interest? Is this about investments?
Wait! Don’t stop reading yet. This isn’t a post about financial investments. Although if you aren’t applying it to money you should start now. Today.
This quote circulated after Christmas:
“It’s not what you eat between Christmas and New Years, it’s what you eat between New Year’s and Christmas.”
And that’s the principle of compounding operating quietly in the background. Time and consistency. While we’re most familiar with compound interest in the financial world, it operates in every aspect of our lives whether we’re aware of it or not. Learn to use it to your advantage.
The power of exponential growth
You’ve maybe heard this before. Or maybe you’ve asked others this question.
Which would you rather have? One million dollars today or one penny that doubles every day for 30 days?
If you said one million dollars today, you’re not alone. 92% of people choose it. It’s a million dollars after-all. Invested for a month at 10%, it would yield almost $8000 in interest the first month.
But a penny? Well a penny is just a penny.
And it stays just pennies jingling in your pocket until day 8 and then it’s worth $1.28. Big deal. By day 15 it’s worth $163.00. Impressive, but a far cry from the $8000 In interest you’re making on your million.
Whoa. Look at day 28 now. And then day 30.
I’m not aware of any financial investment that pays 100% compound interest, but the humble penny demonstrates the power of exponential growth.
The fascinating aspect of compounding is that it applies to every aspect of our lives.
Compounding gives power to habits. Good or bad.
Good and evil increase at compound interest. That’s why the little decisions we make every day are of infinite importance.
C.S. Lewis
The lesson we learn about the principle of compound interest from the world of finance is the value of time.
I know. We’d rather have it now. Instant fame, instant success, instant comfort, instant oatmeal.
Picture the tip of an iceberg.
The tip represents success. All the time and effort that went into success is submerged. It’s what we don’t see that creates the success, but it’s not usually visible.
This presents a problem for us when we look for a magic wand that’ll bring us success, because we don’t realize it’s lying idle within us.
Most of us give up way to early.
It takes discipline to keep doing something without seeing visible results, but keep going.
Don’t give up.
Small tweaks carry huge possibilities.
This is a hard one for me as I battle the mindset that if the results aren’t immediately discernible or not big enough, it’s not worth doing.
Nothing could be further from the truth.
Even 5% provides big gains over time. Small changes to lifestyle yield the biggest results because they’re sustainable. They don’t require huge amounts of discipline. We can habit stack.
And though you start small, the results will grow exponentially.
Time is your friend; impulse is your enemy.
John Bogle
Unlike impulse, compound interest is inexorably linked to time. Think of the Tortoise and The Hare. Continual movement forward, however slow, won over distraction interspersed with haphazard bursts of speed.
Consider these examples.
1. 25% of the month passed before the penny broke a dollar. 93% of the month passed before it broke $1 000 000. Then by day 30 it was worth over $5 000 000.
2. Content seems to go viral overnight and when it does, it’s based on exponential growth. But it starts with one person and generally a whole lot of marketing work occurred beneath the surface.
3. Muscle loss and growth. Anyone who’s had an arm or leg in a cast is familiar with how quickly muscle deteriorates. And we’ve all read how detrimental prolonged sitting has over time.
Curious, I researched how long it takes to notice muscle growth. Interestingly, most of the muscle strength in the first 3 months of weight lifting is due to the development in neural efficiency.
You’ll gain strength, but for the most part it’s an invisible though crucial result of lifting. It comes before muscle mass.
4. How about weight loss? It seems as though nothing is happening and then all of a sudden you’re down a size.
5. Social movements start with a few people, and over time gains momentum.
Random Acts of Kindness grow exponentially as does Pay-it- Forward.
Both of these movements start with the power of 1.
6. Motivation. Have you ever noticed that the less you do the less you want to do, while the more you do the more you want to do? You’re not alone and again we see compounding in effect.
The more we progress the more we tend to progress. We advance not in arithmetical but in geometrical progression. We draw compound interest on the whole capital of knowledge and virtue which has been accumulated since the dawning of time.
Arthur Conan Doyle
7. Reading and learning. When trying to learn difficult concepts, many of us give up before we’ve mastered it. Telling ourselves that it’s beyond our ability.
Of course it is. For now.
Because ability grows through time and effort.
Knowledge and productivity are like compound interest. The more you know, the more you learn; the more you learn, the more you can do; the more you can do, the more the opportunity. I don`t want to give you a rate, but it is a very high rate. Given two people with exactly the same ability, the one person who manages day in and day out to get in one more hour of thinking will be tremendously more productive over a lifetime.
Richard Hamming
How do we ensure we’re making the most of this principle?
That we’re having it work for us instead of against us?
Any actions we take have to be sustainable because time is the biggest factor.
Look at the chart showing the growth of the penny. It wasn’t until very close to the end of the 30 days that results were significant. But then holy cow.
So now what?
If pennies represent your habits – good or bad – what do you project your life will look like at 64? What about 84? Or 94? 100?
We’re never too old or young to start.
Trust the power of compounding
- Identify what works
- Keep Buffett’s 5/25 rule in mind
- Choose your actions carefully
- Actions must be sustainable over time
- Start with small manageable chunks
- Stay focused
- Choose something that will trigger you to stay on track.
The penny is my symbol for ensuring my habits are in line with my goals. It’s my reminder to keep doing what I know will bring results even when the evidence is not yet there.
Let compound interest work it’s magic
- Remember! Small change (think pennies) yields big results.
- Keep going even when, especially when, the results are invisible
- The power of compound interest is it’s ability to transform over time.
We are what we repeatedly do. Excellence, then, is not an act, but a habit.
Aristotle
What habits are you repeating? Are you growing your heart’s desire?
~ Priscilla
P.S. This is another powerful principle that kids need to understand. As an educator, I saw too many kids closing doors on their future because they didn’t understand the power of compounding. Not understanding how time and consistency will yield results, they gave up on learning too soon.
P.S.S. If you know someone that could use some encouragement to keep pursuing their dream, please share. Thank you!
Yes! I want to receive your newsletter!
Simply . . .