Habits – The compound interest of our personal development

Albert Einstein was once asked what the strongest force in the universe is, and his spontaneous answer was: “Compound interest.” When Warren Buffett, arguably the most successful investor of all time, was asked about his most important success factor, he gave the same answer. So these two famously brilliant men may not have been entirely wrong. 

Compound interest in your bank account and in your habits

At least from maths class, we all know the compound interest effect and its importance for our savings account: If you invest €10,000 at an interest rate of 5% per year, you’ll have €10,500 after one year and nearly €27,000 after 20 years. Once the first euro is invested, your account balance not only increases on its own, but also at an ever-increasing rate over time.

Since human habits produce the same growth effects as a savings account [1] [1] What do habits have to do with bamboo: The underestimated power of habit , you can benefit from the compound interest effect even without investing money: Once a good habit is firmly established, it not only enriches your life on its own, but also more and more over time. The interest on your bank account corresponds to the small steps we take every day, while the results of these steps grow exponentially. A large part of these small steps is determined by our thinking and behavioural habits, as more than 90% of our daily decisions are guided by them. [2] [2] Only 5% of our decisions are conscious: Zaltmann, Gerald (2003): How Customers Think: Essential Insights into the Mind of the Market Accordingly, habits are the compound interest of our personal development.

Small habits with a colossal impact

Imagine you read about “mindfulness” for 10 minutes every day. In the short term, this habit makes no big difference in your life. After a month, however, it already leads you to your first major insights. One such insight might be that you want to incorporate more gratitude and appreciation into your life. Another month later, during your daily 10 minutes, you come across the 6-Minute-Diary. You decide to buy it and are sure that your daily minutes spent on “mindfulness” are now well invested – you even save four minutes every day :-).

Just as money in your account multiplies through compound interest, the effects of your new 6-minute habit multiply exponentially with daily repetition. In the beginning, the results are barely noticeable, but after just three months, gratitude and appreciation become a permanent part of your everyday life. In the long run, this leads to better relationships, more joy in life, and a more optimistic outlook. You sleep better, deal more easily with life’s challenges, achieve your goals, and live a longer, more fulfilling life. In the beginning, the effects are minimal, but over time, they become colossal!

For heaven’s sake, practise in small things and keep moving toward great ones. – Epictetus

1% makes the difference in the long run

The compound interest curve of your good and bad habits: 
1% better every day for 1 year: 1.01^^365 = 37.78
1% worse every day for 1 year: 0.99^^365 = 0.03

If you get 1% better every day, that means an improvement of nearly 3800% per year with daily compounding – so your results are nearly 38 times better than they were a year ago. Once compound interest gets going, it develops a tremendous momentum of its own and gradually multiplies everything it gets its hands on. Bad habits therefore become more and more of an enemy over time, while good habits gradually become a better friend. 

You do not need to do extraordinary things to achieve extraordinary results. – Warren Buffett

So it isn’t the few galactic decisions that make us happy and successful, but the many small, everyday 1% decisions – the very ones guided by habits. For anyone who doesn’t like thinking in graphs or percentages, here are a few real-life examples that illustrate this principle:

When compound interest is your enemy: Three examples

1) Negative thoughts about yourself: The more you perceive yourself as a negative or boring person, the more you interpret situations in your life through the lens of these beliefs. This attitude compounds against you until it becomes part of who you are and your identity.

2) Negative thoughts about others: The same applies to your attitude toward other people. For example, as soon as you develop the habit of judging others as selfish or hypocritical, after some time you’ll see a world full of egoists and hypocrites.

3) Stress: Sitting at the computer for hours despite back pain. Taking work problems to bed and into your sleep. Having no time for friends because of work and feeling lonely. On their own, any of these stressors can be managed, but if you do nothing about them for months or years, serious mental and physical health problems will develop.

When compound interest is your friend: Three examples

1) Gratitude: If you write down three things you are grateful for every day, not much changes in the first few days. Over several months and years, however, this small habit develops into a grateful attitude toward life and closer relationships [3] [3] Gratitude creates closer relationships: Watkins, Philip C. (2014): Gratitude and the Good Life. Toward a Psychology of Appreciation , less stress, more success [4] [4] Gratitude makes you more successful: Achor, S.: Happiness Advantage (2011): The Seven Principles That Fuel Success and Performance at Work and joy in life.

2) Doing good to others: Being kind and accommodating in a single conversation doesn’t have much of an impact. But if you keep this in mind during every conversation, it will gradually result in a vast network of strong, lasting relationships.

3) Meditation: Meditating for five minutes every day for one week doesn’t make a huge difference. In the long run, however, this habit has been shown to lead to better self-awareness [5] [5] Meditation improves self-awareness: Farb, N. A. S., Segal, Z. V., Mayberg, H., Bean, J., McKeon, D., Fatima, Z., & Anderson, A. K. (2007). Attending to the present: mindfulness meditation reveals distinct neural modes of self-reference. Social Cognitive and Affective Neuroscience, 2(4), 313–322 , improved concentration and memory [6] [6] Meditation improves concentration and memory: Zeidan, F., Johnson, S. K., Diamond, B. J., David, Z., & Goolkasian, P. (2010). Mindfulness meditation improves cognition: Evidence of brief mental training. Consciousness and Cognition, 19(2), 597–605 , better sleep [7] [7] Meditation improves sleep: Nagendra, R. P., Maruthai, N., & Kutty, B. M. (2012). Meditation and Its Regulatory Role on Sleep. Frontiers in Neurology, 3 , fewer anxiety and stress symptoms [8] [8] Meditation reduces anxiety and stress symptoms: Morone, N. E., Lynch, C. P., Iii, V. J. L., Liebe, K., & Greco, C. M. (2012). Mindfulness to Reduce Psychosocial Stress. Mindfulness, 3(1), 22–29 and greater emotional stability. [9] [9] Meditation increases emotional stability: Chambers, R., Gullone, E., & Allen, N. B. (2009). Mindful emotion regulation: An integrative review. Clinical Psychology Review, 29(6), 560–572

Compound interest – the force Albert Einstein once called the eighth wonder of the world – can therefore work just as powerfully against you as it can for you. If you want practical ideas for using this force in your favour – without struggle or strain – you will find 8 scientifically sound tips here to do just that. 

The right habit for the right goal

To illustrate how powerful compound interest becomes over time, American author Darren Hardy draws an interesting comparison in his book “The Compound Effect” [10] [10] Small habits multiply:
Harrdy, Darren (2012): The Compound Effect. Multiplying your Success. One simple step at a time p.  61 Imagine you want to fly from the East Coast to the West Coast of the United States, more specifically from Los Angeles to New York. If the pilot points the plane just 3.5 degrees too far south at takeoff, you’ll see the White House instead of the Statue of Liberty upon landing. This tiny misalignment is enough to land you in Washington, D.C., a full 200 kilometres away from your actual destination of New York City. Since the nose of the plane is pointing only two metres too far south, such a minimal change at takeoff is barely noticeable, but over the full distance of the United States, the effect of this small change multiplies – and two metres of difference at the beginning ultimately become 200 kilometres.

In the same way, a small change in your habits can steer your life toward a completely different “landing destination” in the long run, thus directing it in a whole new direction. In the moment, a small habit is insignificant. Over the sum of the moments that make up your life, it can make the difference between the person you are and the person you want to be.

First we create our habits, then they create us. – John Dryden

Other blog posts you might also like:  

Changing Habits: 9 Books That Finally Make It Work

Productive Morning Routine: 8 Tips for Starting Your Day

Strengthen Your Willpower: 2 Steps to More Self-Discipline Without Stress

Why Is Focus So Important? 7 Good Reasons

 ____________________

This post is by Dominik Spenst, founder of the 6-Minuten-Verlag, author of the 6-Minute-Diary and 6-Minute-Success Journal. When he isn’t writing 6-Minute books, he is browsing non-fiction books or praising his employees so discreetly that they don’t notice. 

Sources:

[1] What do habits have to do with bamboo: The underestimated power of habit

[2] Only 5% of our decisions are conscious: Zaltmann, Gerald (2003): How Customers Think: Essential Insights into the Mind of the Market

[3] Gratitude creates closer relationships: Watkins, Philip C. (2014): Gratitude and the Good Life. Toward a Psychology of Appreciation

[4] Gratitude makes you more successful: Achor, S.: Happiness Advantage (2011): The Seven Principles That Fuel Success and Performance at Work

[5] Meditation improves self-awareness: Farb, N. A. S., Segal, Z. V., Mayberg, H., Bean, J., McKeon, D., Fatima, Z., & Anderson, A. K. (2007). Attending to the present: mindfulness meditation reveals distinct neural modes of self-reference. Social Cognitive and Affective Neuroscience, 2(4), 313–322

[6] Meditation improves concentration and memory: Zeidan, F., Johnson, S. K., Diamond, B. J., David, Z., & Goolkasian, P. (2010). Mindfulness meditation improves cognition: Evidence of brief mental training. Consciousness and Cognition, 19(2), 597–605

[7] Meditation improves sleep: Nagendra, R. P., Maruthai, N., & Kutty, B. M. (2012). Meditation and Its Regulatory Role on Sleep. Frontiers in Neurology, 3

[8] Meditation reduces anxiety and stress symptoms: Morone, N. E., Lynch, C. P., Iii, V. J. L., Liebe, K., & Greco, C. M. (2012). Mindfulness to Reduce Psychosocial Stress. Mindfulness, 3(1), 22–29

[9] Meditation increases emotional stability: Chambers, R., Gullone, E., & Allen, N. B. (2009). Mindful emotion regulation: An integrative review. Clinical Psychology Review, 29(6), 560–572 

[10] Small habits multiply: Harrdy, Darren (2012): The Compound Effect. Multiplying your Success. One simple step at a time p.  61