Darren Hardy is the publisher of 'Success' magazine, a self-made man who experienced the power of compounding in his life. I have always been interested in learning more about the compounding effect so I can share, teach and more importantly, practice its principles. From James Clear's 'Atomic Habits' I got some pointers and now some hard facts from this book.
I love the examples of compounding. Rolf Dobelli in his book 'The Art of Thinking Clearly' gives. Here's the most astounding one.
Example 1. When you fold a paper 50 times (fold into half and that into another half), how high do you think it will become?
Answer: Assuming the paper thickness is 0.004 inches thick, after fifty folds it will be a little over 70 million miles - approximately the distance between the earth and the sun.
Example 2. If you have to choose between taking a penny that doubles every day for 31 days as against $3 million today which one would you choose?
Answer: The penny doubles every day and reaches 10 million - ($5.12 on Day 10, $5243 on Day 20, $ 3 million on Day 29, and $10,737,418 on Day 31)
Example 3. Kaun Banega Crorepati. The progression is something like 1000, 2000, 3000, 5000, 10000 (Question 5 takes you to 10000), question 10 earns you Rs. 320000 i.e. at 2/3rd distance you are only 3%, and then it compounds - 6.2 lakh, 12 lakh, 25 lakh, 50 lakh and 100 lakh. The biggest jumps are at the end. If you can stay till then, you take the jackpot home. (However, unlike KBC which needs some amount of skill and knowledge, the other things in life can be done by merely staying on course.)
The key - the biggest jumps come in the last three steps which means we must stay in the game till then. Small and consistent over a period of time pays off big time if you don't interrupt! Habits, money, relationships, cricket - everything.
Darren Hardy says that compounding is the principle of reading huge rewards from a series of small, smart choices. The steps are not significant, subtle and imperceptible and can be used to improve every area of life.
Darren's formula is "Small, smart choices+Consistency+Time= Radical Results)
Darren gives examples of people who start with small, smart choices in terms of food, exercise, money and shows how over a 27 month period they reap incredibly different results - one loses 33 pounds by cutting out 125 calories (the difference in choosing between mustard and mayo in a sandwich) while another ate 125 calories more and gains 33 pounds - a difference of 67 pounds separates them at the end of the 27 month period. The graph looks flat for most part - till 25 months - and then it branches out drastically. Lesson - small and smart choices + consistency + time and boom. Progress is slow, the pay off is delayed, but if you stay the distance, it's exponential. What he is saying is that sticking to that diet consistently is the hard part which requires some work, but it's small compared to the payoff in the end. Don't believe in the genie in the lamp box he says.
Our Choices Make Us - Small Choices Can Have Drastic Results
Darren says that you make your choices to begin with, and then your choices make you.
He talks of how he turned his relationship with his wife around by keeping a year-round gratitude and appreciation journal which he presented to her on her birthday (looks like a good idea). Small consistent inputs over a year which paid off big time! And while on relationships - how when he attended a workshop he was asked how much responsibility each one takes to make a relationship work and he said 50:50. The facilitator said 100:0. "When we 'own' 100% responsibility and give 100% with 0 expectations of receiving anything, it will work." Anything will work when we own things like that. That's pretty much the Gita.
He talks of how Richard Branson told him that we are all lucky - only most don't take advantage when luck shows up. To the old adage of "Luck is what happens when Preparation and Opportunity meet' he adds two more "Preparation+Attitude+Opportunity+ Action + Luck)
To Change Things Around - The Scorecard technique
Let's say you want to improve your money situation.
Picture where you want to be first (let's say 10 million or 1 crore). Then, become aware of your choices. Track every action that relates to that area. Write it down religiously. Tracking takes your attention to the smallest things you are doing right and doing wrong. The small course corrections you make when you realise where you can tighten up are what add up.
He gives the example of how a CEO of a company changed the company culture by simply keeping score of how many people he met in a day and appreciated (his target was three people). Within a year, the culture changed and net profit was up 30%. Also, Darren's assistant Kathleen who was short of money began saving 1%, then 2% and landed up at saving 10% of her income and soon her habits changed her money situation.
The Effect of Time on Compounding
Clearly, the earlier you start the better (which means NOW). He gives a fine example.
1. X saves and invests 250 dollars a month from age 23 to 40. At 40 years, she has no further need to invest, has more than 1 million which is growing at 8%. She has invested $54000 over 17 years and ended up with $ 1,033,289.
2. Y saves nothing till 40, starts saving 250 a month from then on till he retires at 67 years. He has invested $81,000, for 27 years and still has earned $300,000 less.
Earlier the better, which means start small, but start now!
Darren also gives the example of how we can get 1000% improvement if we make a 1% improvement to each workday! Atomic Habits at play!
The Importance of Habits
Darren talks of how building the right habits is important to get large pay offs. Getting rid of all that gets in the way of your goal, the stuff we do for instant gratification, and bringing in tiny positive changes into our lives that build over the years is important. Our habits are automatic and unconscious so we must carefully analyse and build in the ones we want versus the ones that are getting in our way. Progress is slow, but over a period of time, the compounding effect will show in our graph (both ways)
To build these habits needs some work. We cannot merely rely on our willpower for that. Our will power is limited. A better way is to identify our purpose, our core values, our highest values and go with them. They will guide you and give you the strength to pull through. They will draw you, guide you, because they are bigger than you. (Seek fulfilment and not achievement he says.)
The access point to your why is through your core values. So get the core values defined and calibrated or else they will conflict with your behaviors causing stress. Stress is when our actions and behaviors are not congruent with our core values.
Find your motivation he says - whether it is what you love or what you hate. Map out your vision a well defined target that you can see clearly in all important areas. Figure what you need to do and what you should not do to get there. What you finally do is the key.
Eliminating Bad Habits, Building New Ones
To eliminate bad habits - 1) identify triggers (who, what, when and where) 2) remove stuff from the environment 3) swap a healthier option for a unhealthier one 4) ease yourself in or jump in as the case may be.
To install good habits - 1) make it easy by setting up the environment 2) add versus removing such as add a healthier option instead of denying yourself what you like 3) commit to public displays of accountability 4) find a success buddy 5) set up challenges and competitions 6) celebrate achievement. Love the hard stuff and be patient.
Don't Stop - Picking Momentum is Difficult When We Stop
The importance of building and maintaining momentum is discussed. when we stop we go to zero and start again which needs a lot of energy. You are better off not stopping completely, because otherwise, you lose all the benefits you accrued over a period.
To build momentum
- make new choices based on goals and core values
- put choices to work through new positive behaviors
- build routines and rhythms into daily discipline
- stay consistent over a long period
Greater the challenge, more rigorous the routine needed.A routine is something you do every day without fail. Make a checklist and keep at it if need be. Darren suggets we bookended our day - build routines on how you begin your day and how ou end it. Shake it up once in a while to add fun (date nights with wife etc)
Importance of Influences on Our Life and Habits
The importance of influences on our habits and our life is huge. Our major influences are
1) the inputs
2) our associations
3) our environment.
Be aware of what your inputs are - feed in the right stuff into your brain so it thinks right. Having a media diet, a junk filter can help.
In your Associations identify who is influencing you and who you are spending time with. Begin a program of Dissociation, Limited association and Expanded association. Seek peak performance partners and mentors and a Board of Advisors.
As far as the environment goes, he says, change your view and you change your perspective. You will get in life what you accept and expect that you are worthy of. What you tolerate you'll get.
Accelerate Your Growth
To accelerate your growth add in small improvements every day. When you hit the wall, ask yourself and push some more. Beat expectations he says (this lovely story when Oprah called 11 members from the audience who needed a car and then announced an extra one for a lucky member in the audience. The audience had to open a box in front of them and if they found a key they were the lucky ones. And guess what, everyone got a key and a car.)
Dareen says, do the unexpected, do better than expected. Identify your moments of truth and push through to find new points. Do extra in areas of your life that matter, find 3areas where you can beat expectation.
The idea of compounding has been well explained with enough examples. To do small things consistently over a period of time is the key to gaining big outcomes in the end. Waiting for a big something to happen one fine day is not going to work because we are not prepared to receive it, handle it or use it wisely. It is better to prepare and build.
It's a behavioural thing so we need to go back to our behaviors, our habits and analyse them by tracking them, especially in areas that are not working. The small corrections we make of reducing a harmful habit and adding a beneficial one, however small (like adding a glass of water instead of a soft drink, or walking for 15 minutes instead of watching junk, or spending 15 minutes of quality gadget-free time with your partner as opposed to being on WhatsApp), will have huge benefits in time. It helps to have clarity on the person we want to be, identify our core values and drive our story from there. You can visit www.thecompoundeffect.com for more inputs. Definitely worth a read.