All things in life come through compounding. This piece of advice has changed my outlook on life. There is another quote that does the rounds - "Compounding is the eighth wonder of the world" Many people assign this quote to Einstein, but there is no official record of him ever saying it. Whenever we hear the word "compounding" the first thing that comes into our mind is compound interest on our money. However, I am saying that nearly everything in life is a result of compounding. All good things compound to give us benefits, while all bad things also compound to adverse outcomes. Compounding is a process. It extrapolates whatever we feed it.
Compound interest is a simple phenomenon. We earn interest on our previously received interest. A 10% return on 1000 gives us a total amount of 1,100 i.e., interest of 100. If we get 10% on 1,100, we get our interest as 110 i.e., we earned interest on our interest. If this continues for about 20-25 years, our interest portion will form about 80% of the total amount. Similarly, whatever we do in our life for a long enough time, it feeds upon itself to give us more of that.
Compounding is back-ended, meaning, the real results of compounding happen at the end rather than at the start. The start is very dull, and no actual results are noticed. Instead, we have to do hard work and keep ourselves disciplined. If we invest around 40,000 every month, then at the rate of interest of 15% per annum, it would take us 10 years to reach the amount of 1 crore. While it would take only 4 years to go from 1 crore to 2 crores. And only 2 years to go from 2 crores to 4 crores. As time passes, compounding becomes stronger. We start getting better results for our early discipline.
Let's take another money example before moving ahead to different areas of life. Consider two individuals named Doraemon and Pokemon.
We can see that Pokemon has saved three times the amount of what Doraemon has saved. If we consider a 7% return per year, at the age of 58, Doraemon would still have more money than Pokemon. Why? Compounding. Doraemon started early and had more time on his side. As time went on, the compounding effect started to snowball his money. This is the power of compounding. We underestimate it to a great extent in our life.
Compounding has tremendous effects on our health. While young and energetic, healthy habits are ignored. We latch on to bad habits, which compound to give us an array of health issues in the latter part of our life. Most chronic diseases like diabetes, blood pressure, arthritis, asthma are the results of the compounding of lousy diet choices and a sedentary lifestyle.
Sugar has become an essential ingredient in our daily diet. Our body doesn't require artificial sugar. It gets enough from other sources. Consuming sugar every day leads to insulin resistance, which ultimately leads to type 2 diabetes. With the advent of western toilets and chairs, we have forgotten to sit with our knees folded or hinging our hips. This form of sedentary lifestyle continued for a long period, compounds to give us arthritis.
Let's understand how eating frequently or eating sugar leads to insulin resistance. When we eat carbs or sugar, the pancreas releases insulin to store glucose for energy. The more sugary products we eat, the more the amount of insulin is required to store the excess energy. If we eat 4-5 times a day i.e., breakfast, lunch, evening snacks, and dinner, our body has to release insulin that many times to store energy. If we continue doing this for 30-40 years, our body eventually becomes resistant to insulin leading to type 2 diabetes.
If we focus on simple things like walking every day for 60 minutes or not eating processed foods, it will compound to give us benefits over a long period. For my personal habits, I only eat once a day for five/six days a week. My processed food consumption has dropped down to less than 10% of my monthly diet. I have been doing this for more than a year now. It's early, but I have seen many positive changes in my health. I am not saying that we might die if we don't do these things. Medicine has advanced a lot to give us long life. But what's the use of that long life, if you cannot eat, move and enjoy your lengthy life?
For exercise discipline, I do sit-ups every day to give my hips and knees their natural movement. One of my crazy goals is to be alive until 110. I want to see the new century i.e., 2101. These habits are just a part of reaching that goal healthily. I don't want to be bed-ridden in my old age. I want to be active.
Knowledge compounds with time. Instead of trying to finish a book, get into a habit of reading 10 minutes every day. Read anything that you are interested in, like a page in a book or an article or some news. The only qualifying factor should be that it would make you gain some insight or make you smarter than you already are!
If we can be 10% smarter every year, we will be twice as smart as we are today in seven years. And thrice as smart in twelve years. The goal here is to be 10% smarter every year. Initially, we wouldn't notice many differences. But as our journey continues, the momentum catches on to form a snowball, and compounding takes over to give us the benefits.
What is the snowball effect? Consider we are the top of the mountain, and we make a small snowball that can fit in our hands. If we roll that snowball downhill, it will start gathering snow as it goes down. In its initial journey, it wouldn't seem a problem. But as the journey continues, the snow accumulates more snow, and that snow now gathers more snow leading to this substantial mammoth ball of snow by the time it reaches the bottom of the mountain.
Compounding works similarly. We generally start small. No significant improvements are seen. But if we are disciplined and continue our process for long enough time, we start seeing substantial gains after some time. Discipline is an essential factor for compounding. It's okay to occasionally eat an unhealthy diet or not exercise for a week. But don't make that a habit. Breaking our discipline once is okay. Doing that twice in a row becomes a habit.
1% rule is one of the famous rules that I have come across. If we improve ourselves by 1% every day starting on the first day of the year, we would be 38 times better at the end of the year. But if we degrade ourselves by 1% every day, we would nearly be zero by the end of the year.
(1.01)^365 = 37.8
(0.99)^365 = 0.03
Here are some things that compound over time to give you excellent benefits:
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