If you’ve read my two previous posts on compound interest(I and II), you may have guessed where this was going. The real power of compound interest is not that it can make numbers grow faster than you might think; it’s that you can leverage that power to improve your day-to-day life. In this post I’ll briefly discuss habits and how compound interest is what gives habits (particularly daily habits) their power.
Specifically, what habits actually give you is frequent chances to improve. If you do something everyday you have ~365 chances to improve per year; every week you have ~52 chances per year; once a month 12; etc. As we saw previously, the longer you’re able to maintain the improvement / growth (i.e. the longer you can keep compounding) the more the numbers start to explode. To stick with the past article’s example of 1% growth of a skill (starting from a base skill of 1):
Just compare weekly vs. daily. For ~7 times the periods you get ~22 times the result!
It’s worth mentioning that just having more periods is not enough. You actually have to improve consistently! Easier said than done, right?
Exactly right. Improving by large amounts consistently is basically impossible… BUT with the right habit it’s possible to consistently improve by tiny amounts (think 1%; 0.5%; 0.1%). If you can do that compound interest will let you turn those tiny but consistent gains into something meaningful. To give demonstrate this with another example, at year end:
In summary, consider adding as many good habits as you can (ideally daily habits)! A few simple examples you can consider: