Did I hook you in with the title? Bold statement isn’t it?
This investment costs very little money. The investment returns beat the stock market by a long shot. You know all about the investment so the risk is low. The investment is not overvalued because no one else knows about it like you do. The investment returns are tax free. Your investment is available to take whenever you like – it is not locked away. Nobody can take the investment off you. The investment is managed by you and not someone you don’t trust. Other people can tap into your investment too. Your investment gets better over time. You can control the investment returns – not dictated by the economy.
Have you guessed yet?
That’s right, the best investment you will ever make is YOU.
Why don’t more of us make the investment then? Because when we do, the changes are often so slow and gradual at the beginning that we give up. The problem is compound interest isn’t just in relation to our money. It applies to us too. Lots of up front effort for minimal reward, but given time, the rewards become exponential.
Example (loosely based on the book “compound effect” by Darren Hardy)
Carl and Kevin are similar in every way. Same weight, same age, same lifestyle. Both with a wife and kids. On the same day, both Carl and Kevin decide to make one seemingly small change in their lifestyle that will affect the rest of their life.
After watching an episode of cake boss on Food TV, Carl decides he wants to lose weight. Kevin decides that he wants to learn how to bake cakes.
Carl starts exercising. Nothing big – just walking 2km a day. Because he is exercising he now wants to eat healthier. Again, no major changes – maybe just leaving the mayo off the sandwich. Only reducing his caloric intake by 125 grams per day. Carl’s job starts to get a bit stressful. His walking every day has become a good stress reliever for him. Carl isn’t that knowledgeable on healthy eating or the best exercises for losing weight so he goes to the library to educate himself.
Whereas Kevin cooks a treat twice a month. Not a major change. Kevin’s job has also become a bit stressful. Eating a treat twice a month is not frequent enough to act as a stress reliever. Kevin decides to build a bar in his house and has one drink a week. These changes are not big, but they do add his caloric intake to 125 grams per day.
After 6 months, there are no visible differences in their appearances. Carl may easily think to himself what is the point? I am working much harder than Kevin but we still look the same. But he is feeling better mentally so he decides to stick at it. Carl continues to read all kinds of books he found at the library and listen to podcasts. Kevin continues with his routine of eating baked treats twice a month and drinking a beer a week.
After 12 months, there are still no major physical changes. It is not until 2 years where we start to see more significant differences. Carl is now thin and Kevin is now fat. Carl has lost 12kg, whereas Kevin has gained 12kg. Kevin is now 24kg heavier than Carl.
There is more that has changed than just the weight though. Because Carl has been listening to and reading all kinds of educational materials, his newly found knowledge has earned him a raise at his job. His marriage is thriving and he is spending quality time with his children.
Kevin’s eating of unhealthy food makes him sluggish at night. He wakes up a littler groggy and sleepy which makes him cranky. His crankiness is carried into work and starts to impact his performance. He is less productive and gets discouraging feedback from his boss. By the end of the day he feels dissatisfied with his job and his energy level is way down. The commute home seems longer and more stressful than ever. All of this makes him reach for more comfort food and drink. He no longer feels like spending time with his wife any more. She misses their time together and takes his withdrawal personally. By not exercising and spending time outdoors, he is not getting the endorphins he needs to make him feel upbeat and enthusiastic.
He starts to feel less happy, less confident and less romantic. He loses himself in late night TV. His wife is lonely and starts to withdraw mentally to protect herself. She starts to go out with her girlfriends, and guys start to compliment her. She feels better about herself. She would never cheat on him, but Kevin blames her. If Kevin had read the self-help books that Carl read he may have recognised how his habits were affecting his marriage.
The small choices Kevin made daily had a ripple effect that wreaked havoc on every area of his life. The effect of compounding, had the opposite impact on Carl’s life. He is reaping the bounty of positive results. With enough time and consistency, the outcomes become visible.
How can we invest in ourselves?
1/. Be a lifelong learner
Read books. Listen to podcasts whilst stuck in traffic. Take classes.
2/. Try new things
Try things that you would never normally try. Remove yourself from your comfort zone.
3/. Take care of your health
Eating healthy and exercise can have a big impact on your success.
4/. Be grateful
If you are grateful for things you have in your life, it means you are happy. If you are happy you are going to be a more productive member of society.
5/. Find mentors
Have people in your life that you look up to. Their knowledge and experience can save us years of heartache. Tap into that. Pay for a professional mentor or coach if needed.
6/. Ask questions
Don’t always accept an answer for what it is. Question it and do your own research. It may have been right but at least you will learn more in the process.
7/. Learn new skills
How to change the oil in your car or how to fix a leak. Not only will you save costs in that one instance you need but this knowledge will last a lifetime.
8/. Give yourself a break
We can’t always be everything to everyone. Don’t be afraid to clear up your diary every now and then to give yourself a break from a hectic schedule.
9/. Set goals
Good goals will give our lives direction
10/. Form good habits and break bad habits
Learn what habits and behaviours are hindering your progress and try to remove them.
Isn’t it comforting to know that you only need to take a series of tiny steps consistently over time to radically improve your life? It does not take one grand show. We have been conditioned by society to believe in the effectiveness of a great display of massive effort.
The challenge of compounding is that we have to keep working at it for a while. Consistently and efficiently before we can see the payoff.
Our grandparents knew the secret to success was hard work, discipline and habits. We seem to have lost these values for wealth and are looking for a quick fix or someone that will save us from our situation.
To us, it looks miraculous or magic. It looks like an overnight success. An athlete that walks into a 5 million dollar contract was lucky. No, they weren’t. That is what we like to tell ourselves to make us feel better about our own decisions. What you don’t see is the years of hard work and smart, consistent choices that help them get to where they need to go.
The person who uses the positive nature of compounding is using small, smart choices over time. Small changes can have significant impacts.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here