Compound effect and habits


In the stock market, there is an effect known as compound interest. In a nutshell it works like this: when you invest 100$ with a an yearly return of 10%, after the first year you will have 110$ . However after the second year you will have 121$ (so a growth of 11$ compared to 10$ from the first year). After third year you will have 133.1$, 146.41$ after fourth and eventually, after 10 years you will have 259.37$ an additional 159.37$.

So the interest rate of 10% yearly applies also to the earnings you’ve made this year. Therefor its called “compound interest” as opposed to a 10% interest that applies only to the initial investment. And if you look at a longer period, you will notice that the growth is exponential.

Stocks? What?!

Yeah, right. Back to habits. See, habits work the same way. When you break some habit, or fall into a bad habit, it creates the same compound effect. At some point you wake up and ask yourself “How did I get there?“. But what happened in retrospect is that one day you’ve missed the gym, and since you’ve missed the gym you decided to allow yourself eat a burger instead of a salad, with beer instead of water, in front of a TV instead of working on your hobby. And the next time you need to go to the gym, you are like “But I’ve already missed one session, so whats the harm in missing this one as well”. And then you wake up and ask yourself “How did I get there?“.

Of course its not that fatal. Missing one gym session won’t throw you to the bottom of life, and it depends on your self motivation and self control. I, for example, struggle to start the work week after the weekend. Even if just before weekend I’ve been super engaged with work, weekends throws me off my track and starting the week is hard for me.

There is an unwritten rule in the habit making world that says “Never miss a habit two times in a row”. So if you’ve missed the gym, you must go the next time. Compound effect takes time to accumulate. One missed habit will shake you a bit, but usually, if you have strong self control, it should not put you off track. A habit missed twice - is harder to recover from. And the scary thing is that once you break one habit - others start to break as well. Compound effect.

The good part

But there is a good part as well. Compound effect works the same way with good habits. You start to build the habit of working out. At some point you realize that your diet matters so you start to eat healthier. By eating healthier you cook more at home hence saving money on take away as well as investing in a clean kitchen (no body wants to cook in a disgusting kitchen). By setting the habit of cleaning your kitchen, you expand it to keep your entire house tidy, which leads to getting rid of stuff you don’t need hence being intentional with what you buy (which again, saves money). And it one year you will look back and realize that you’ve changed as a person. Compound effect.

Start Small

The compound effect is very strong. But like anything in life - abuse it and it will work against you. By tackling many habits at once, you risk the chance to developing none at all, or worse, introducing bad ones. Here are some tips on how you can create new habits and enjoy the compound effect.

  1. Start small - focus on one habit. Remember - habit is not something that you do 3 times in a row. Forming a habit takes around 66 days. But it doesn’t mean you should focus only on one habit every 66 days. Get the ball rolling. Once you are comfortable with the habit, introduce new one. For me it takes around 1 to 2 weeks of daily habits to start sticking. But its personal, so see what works for you.
  2. Know your self. By knowing your self, you know how much self control you have. By knowing how much self control you have, you know how to tackle a broken habit. I personally know that its way harder for me to come back to a habit if I missed it 2 times in a row. For some of you it could be 4 times, for others 1. There is no magic number, it entirely depends on your self control. Experiment and see what works for you.
  3. Don’t be hard on yourself. When you miss a habit, don’t beat yourself. You are not a failure for missing a habit. Life happens so your Monday gym session might fall on a period when you are sick, overwhelmed with work, on vacation or just lazy. It’s not the end of the world. Make adjustments and reschedule. Remember - It’s ok to miss a habit, its not ok to break it. So reschedule according to your magic number from point 2 above.

Remember, habits are very individual. Individual in the way how you build them and individual in the way why you build them.

Don’t create habits because someone told you it changed their life. Remember, it changed their life. It might not change yours. Always start with self discovery. Realize why you want to build a habit. You want to be active and live a healthy life? So find a physical habit. Don’t run to the gym because someone told you that you must do that. Not everybody like the gym. There are plenty of other physical activities like cycling, rowing, running, yoga, boxing, HIIT and etc. Find what works for you.

Once you found it, experiment on how to implement it. You have 1 free evening? So go to the gym once a week (or do any other physical activity that works for you). Sure somebody will tell you that once a week is not enough because they go at least 5 times a week. But again, its their life. They might have 5 evening available because they work on a different job than you or have a different lifestyle than you. Again its your life. Once a week is always better than none. You can’t enjoy the compound effect on zero - because any % from zero is still zero. Start the ball rolling and you will adapt your life. Sure it will take you more time to reach the same results as the 5 times a week guy/gal, but you are not your single habit - your are the sum of everything you do and don’t do in life, and no two lives are similar. Always remember this.