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One of the most important concepts for building wealth is learning to take advantage of the concept of compounding: allowing growth to continue over time. Albert Einstein is credited with saying, “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t, pays it.”
But it doesn’t take a Nobel Prize in physics to understand the importance of letting your money work for you, rather than the other way around. And those of us with kids and grandkids understand how important it is to teach them the principle of compounding early in life, while they still have the advantage of years to put this “magic” to work for them.
But there’s another side to compounding that might be even more important than its financial applications. Did you know that the principle of compounding works in other areas of life? In fact, applying compounding to the non-financial parts of the daily routine is often the thing that sets apart the remarkably successful and productive from those who are merely “getting by.”
Learning Experiences
For example, what if you could apply the principle of compounding to your life experiences? By incrementally adding to your knowledge and understanding from the things you experience each day—call it “wisdom compounding”—you can improve not only your quality of life but also your ability to get the most from each day. Then, as you learn, you create the basis for more learning over time, leveraging what you already know to expand your real-life wisdom even more. Making lifelong learning a habit is one of the best forms of compounding.
Starting Your Day the Right Way
Did you know that a disproportionate number of highly creative individuals—people like artist Salvador Dalí, journalist and entrepreneur Oprah Winfrey, politician Angela Merkel, and others—have a daily routine that often begins when many of us are still asleep? Some of the most influential and creative people in history, including Ludwig von Beethoven, philosopher Immanuel Kant, writer and psychologist William James, and architect Le Corbusier were all early risers who started their day with exercise, a brisk walk, or some other ritual. For you, it could even be the quiet moments spent with your first cup of coffee. The point is, establishing a ritual that helps you jump-start your day can have a compounding effect on your level of accomplishment, mental organization, and momentum.
Reading
Related to the importance of lifelong learning, reading is a common denominator for many high-achieving individuals. This can take the form of deep dives into a specialized area—like those who read everything they can get their hands on about personal improvement, or investing, or how to eat right. But it can also be wide-ranging: fiction, biography, inspirational stories, or your favorite blog. The point is, voracious readers take in large swaths of the ever-expanding universe of information, placing a larger share of the world’s experiences at their disposal. The more raw material you can acquire for your personal learning, the better your memory, the less stress you feel, and the better prepared you are to take maximum advantage of all the information life provides.
Exercise
Don’t worry, this isn’t about guilt-tripping you into pursuing a better weight or getting a six-pack. Even a small amount of physical exercise, taken systematically over time, can contribute to incremental improvements in health, attitude, and alertness. Even a five-minute walk, taken three to five times per week, can deliver measurable benefits if maintained consistently over time. The key is to make your exercise sustainable and consistent. If you can ramp it up gradually, so much the better.
Attitude
Compounding also applies to our emotions. A significant body of research indicates that persons who practice being conscious of feelings of gratitude and thankfulness experience less stress, healthier hearts, lower blood pressure, and lower incidence of depression. Simple practices like keeping a “gratitude diary,” thanking people for acts of kindness or consideration, and other small ways of recognizing the good moments in life can have a compounding effect that leads to better emotional and physical health.
In all these instances, the two key principles are consistency and time. Compounding works best if it is continued on a regular basis, part of a consistent routine. And time, of course, is the growth medium that compounding needs in order to thrive. Finally, we need to keep in mind that the benefits of compounding tend to be “back-end loaded”: they deliver their maximum benefit when applied over a longer period of time. So, patience and persistence should be cultivated if you want to see the gains on your assets generate the most gains of their own.
At Aspen Wealth Management, we understand that you are more than your portfolio. Our goal is to deliver guidance that puts the best interest of each client foremost, whether considering financial decisions or other life priorities. If we can help you put the principles of compounding to work more effectively in your life, please get in touch with us; we’d love to hear from you.