EVERYTHING COMPOUNDS

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Approximately two-thirds of the public does not understand the effects of compound growth.

Linear growth is valuable, a slow burning fuel source over the course of time. Linear growth is comparable to driving an old pickup truck. It is steady and serves a purpose, though hardly exciting.

By comparison, compound growth is dynamic. It is like rocket fuel or driving a Model S Plaid Tesla. The Model S is a startling display of power. There is a reason the phrase “the power of compounding” is so common.

You probably already have a few examples of compounding racing through your head. You may understand compounding from a distant, philosophical perspective.

Compounding is a two-way street. In the same way that the law of compounding is able to fuel incredible growth, its negative/downside is an equally powerful force.

Because of this dichotomy, we’ll inspect the benefits and drawbacks of compounding.

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Life as a Whole

A leak in a roof will compound. It rains hard one day and a bit of moisture manages to break the barrier of the shingles. A slow drip into the attic persists for several months and soon becomes a steady, persistent drip every time there is rain. The average homeowner doesn't even notice.

The wood subsurface under the shingles begins to warp and rot. After a handful of years, the insulation in the attic is ruined, and there is water in your living spaces.

The initially minor issue results in significant damages due to a slow compounding of the leak over years or even decades.

The choices tied to health and wellness will compound. Even several months of consistent effort in the gym may not yield obvious results. A few months of healthy eating may only lead to marginal changes in appearance, complexion, or general healthy feelings.

The real benefits of a healthy, active lifestyle are realized years and decades into the future. A single healthy meal or one trip to the gym is relatively meaningless. Many healthy meals and many trips to the gym in the aggregate over the long-term can lead to a vastly better life.

The small decisions in taking a step to overall health/wellness compound over time and can provide the thoughtful practitioner with immense benefit.

Generally speaking, essentially all decisions in life will compound over time.

Choosing to learn and expand your skill set early in your career may seem insignificant, but over time an hour or two each week of education/improvement can create a large edge over your peers.

Waking up an hour earlier each day may have only a slight impact on your overall productivity. By effectively utilizing this additional hour for a year, you would gain 365 hours or the equivalent of 15.2 additional days.

What would this small change in your daily routine look like over a decade or an adult’s (age 18 to 78 for simplicity’s sake) lifetime?

Just an hour of productive effort would lead to the equivalent of 152 additional days over the course of a decade and or an additional 2.5 years over one’s adult life. Simply put, if you wake up an hour earlier every day, you will be awake for an additional 2.5 years over a lifetime! A seemingly insignificant change results in a vastly different outcome/life.

There are countless examples like this in our everyday lives where a simple application of delayed gratification or sacrifice can result in a hugely meaningful difference when viewed through a long time horizon.

Wealth

The importance of compounding is a common narrative in the saving/investing realm. Despite this, many investors fail to recognize its value.

Nearly 64 percent of Americans feel as though they are behind on saving for retirement. By not taking advantage of time and compounding, these individuals will face a steady headwind on forward progress.

Assuming an 8% rate of return of the period, it is easy to see the value of time and the effects of compounding leading up to age 72 (a common proxy for retirement age).

There are no secret methods or significant hurdles when it comes to saving, investing, and prioritizing your future. This table isn’t available to only the already wealthy or the elites. You have the same access as anyone else to the power of compounding.

Don’t miss the opportunity in the present to take advantage!

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TL;DR

Nearly every aspect of your life is affected by compounding.

The law of compounding can easily work against you, but when harnessed in your favor it offers incredible benefits.

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Can you recall a time when compounding worked for or against you? Save a friend the headache by sharing this post so that they can understand the impact of compounding and leverage it in their favor.