Compound Interest

I was out at dinner with a couple of friends this week at a Western style restaurant in Saigon. It’s one of those places that has an almost obnoxiously large menu.

We started talking about why some people take a long time to order and go over all the choices and why some people just pick something and roll with it.

Someone made the argument that it doesn’t really matter what you order because you’re going to order so many times over the course of your life that a single incidence doesn’t really matter.

That’s true. Over the course of you’re life, the consequences a single meal, good or bad, is effectively 0 (I’m discounting black swan events – like contracting food poisoning or salmonella).

But the counter argument to that is that what you order that one time sets a pattern. It in a way, it determines the type of person you are.

I started thinking  in the context of business and goals.

In the long run, having an off day where you don’t work towards your goals isn’t that costly because you’ve got lots of days.

But if that day begins to form habits, then the consequences become a lot more profound. It’s no longer a single incident, it’s one of many repeated incidents of the same class.

I recently read this Tucker Max article where he said that the best predictor of future success is past success. I think this is true of pretty much everything. The best predictor of what you’re going to do tomorrow is probably what you did yesterday.

In this sense, it’s why what you do every single day is so important, because it’s setting the course for the rest of your life.

In that sense, what you do today is urgent, because it’s charting the course for the rest of your life.

There was this Lao Tzu quote that one of my high school teachers had on her wall that I think of frequently:

“Watch your thoughts; they become words. Watch your words; they become actions. Watch your actions; they become habit. Watch your habits; they become character. Watch your character; it becomes your destiny.”

I’ve recently begun to think more and more about the inputs in my life.

At least for me, my thoughts seem to be overwhelmingly dictated by my environment. So I’ve gone more and more out of my way to create an environment that generates the kind of thoughts that reflect the person I want to become.

A lot of far wiser people than I have realized this obviously.

The quote, “You are the sum of the 5 people you spend the most time around” springs to mind.

The dangerous thing, at least for me, is becoming neurotic about every little single thing. I think that’s probably a waste of time and energy.

But, I think it is important to see the broad trends in small decisions that we make. Over time, the compound interest on those becomes enormous.

If 90% of days you wake up and think and do the same things, then those thoughts and actions will become your destiny.

It can be tough though when you’re in the middle of it to keep pushing. Because the very small actions take a long time to compound into something meaningful and visible.

At least for me, the best way to get a feel for this is by looking back on 1 year time frames. It’s long enough that you can see real progress from the compound interests of all those little actions, but short enough to show that you’re actively moving in the right direction.

I’ve found it’s tremendously beneficial to schedule a day or at least half a day every few months to do this kind of review. I think the Weekly Review that David Allen advocated in Getting Things Done works as well, though it can seem too frequent.

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  • http://www.chiaracokieng.com/ Chiara Cokieng

    Hey Taylor, very true. I’ve been getting into habits recently. I never thought much about them before but I’m starting to recognize how powerful it is to learn how to make good habits.

    Willpower and motivation get a lot of the spotlight, they’re the big cash outlay if you can figure out where to get them (and runs out fast too). But a habit is a small deposit that compounds into something big over time.

    • http://www.frontierlivin.com/ Taylor Pearson

      For me, the return is on using willpower to create habits. While you run out of willpower, if you’re using it to build habits then you won’t continually need to dig back in to your willpower reserves to get the same thing done.

  • Tommy H.

    “We are what we repeatedly do. Excellence, then, is not an act, but a habit.”
    Aristotle

    Really enjoy reading your blog and like the way you think. Keep searching. In line with the Lindy Effect, I highly recommend scripture as a good place to start.

    All the best and keep reading, thinking, and sharing,
    Tommy

    • http://www.frontierlivin.com/ Taylor Pearson

      Fantastic quote Tommy. Thanks for the encouragement the recommendation about scripture. Reminds me that I need to go read more from the classics.

  • Jesse

    When bicycling across the US, there were many times I would be flagging hard and want to get off the bike. I forced myself into the habit of giving an epic battle-cry before reaching the fail-point, and this almost always found an extra reserve of energy. I’m convinced this single habit cut my crossing time by a couple of days. (Note: Battle-cries are frowned upon in cafés in most parts of the world.)

    • http://www.frontierlivin.com/ Taylor Pearson

      Couldn’t help but picturing you in the Barbaric Yawp scene from Dead Poet’s Society when reading that. One of my favorite movie scenes ever (not saying much) – http://www.youtube.com/watch?v=QbzLUQKTDQE