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Compound Interest & How It Affects Your Life

Here’s a question for everyone:

If given the choice between a million dollars and a penny that you would get 30 days from now, what would you choose?

Now what if I told the million dollars will be a million dollars but the penny will double every day (Day 1 = .01; Day 2 = .02, Day 3 = .04, etc), what would you choose then?

If you chose a million dollars then congratulations you’ll be RICH on day 30, but if you chose the penny then congratulations you’ll be even RICHER!!  How does that work, you ask?

Let’s do the math:

compound-interest-math

That’s the power of compound interest.  This is not a new concept and anyone that has a 401k or retirement fund should understand it.  But how does it relate to what we do every single day?  The formula for success in anything, is a few simple disciplines, repeated every day. Decisions you make on any given day will compound on itself over time.

This can either work for you or against you. Let me explain with a few examples.  Let’s say you make a decision today to eat one medium sized donut.  The calories in that one donut is 195.  Will that one donut affect your diet today?  Probably not.  195 calories can easily be worked off.  But what if you had a donut every day for 30 days?  That’s a total of 5,850 calories.  Will those 30 donuts affect your diet?  Probably so, but you could still work that off if you made a decision to stop after 30 days.  But what if you had a donut every day for 6 months?  That’s roughly 35,100 calories and not good calories mind you.  Will that affect your diet?  Absolutely.  If you ate a donut every day for 6 months you would absolutely see the effects and not in a positive way.  That’s compound interest working against you.

compound-interest-working-against-you

Let’s see how it can work for you. What if you decided to run 1 mile today?  Will running 1 mile once affect you today?  Probably not.  Sure you might be hurting from that mile, but one day of it won’t all of sudden put you in Olympic athlete shape.  But what if you ran 1 mile every day for 30 days?  That’s 30 miles ran.  Will that affect you?  Possibly.  We’re getting closer and you’re starting to develop a healthy habit.  Now what if you ran 1 mile every day for 6 months?  That’s 180 miles ran.  You’re probably still not in Olympic athlete shape, but you’ve built a solid foundation to grow from and can start adding mileage much quicker.  In fact, if you started running just 1 mile a day, eventually you would want to add to it and it’s recommended that you add just 10% per week to help avoid injury.  Now let’s say instead of 10% you decided to increase your daily mileage by 5% per week.  Easy enough.  At the end of 6 months your daily mileage would be 3.39 miles per day.  If you kept that exact mileage up for 180 days you would have ran 610.20 miles.  That’s roughly 25 miles per week.  The impact on your health and training would be tremendous.  Chances are, you’d increase your mileage faster than that, but you would have created a daily habit that will stick with you and the compound interest effect would build on itself putting you in position to accomplish just about any goal.

compount-interest-working-for-you

Each day comes down to a bunch of small decisions that at the time doesn’t seem like a big deal and for that day they’re not, but that same decision made every day can compound either for you or against you. As an athlete you make decisions every day on preparing for your sport.  You might decide to cut the workout short one day then the next then the next and so on.  Thinking that not running one of the sprints or not doing the last set would ever hurt you.  It’s just one day, right?  That decision will absolutely affect your performance and not in a good way, but the great thing about compound interest is, you can make it work for you.  If you make a decision to put in just a little bit of extra work every day, over time that will have a huge impact on how you perform.


We often see success and think it was luck or maybe just a bunch of natural talent, but what we don’t see is all the blood, sweat and tears put into the daily work. Walter Payton, one of my favorite athletes of all times, had off season workouts where he literally ran until he threw up.  How many of us can say we’ve pushed ourselves that far?  And more importantly, how many of us can say they’ve pushed themselves that far EVERY DAY?

Today that changes. Make a commitment that you will take each and every decision serious no matter how big or small.  The small decisions are not always the most fun, but when you compound them over time, they can and will have a huge impact.  Remember, the formula for success in anything, is a few simple disciplines, repeated every day.

Attack the day by handling the simple disciplines.  It may only be worth a penny today but compounded over time it may be worth millions!

 

“If you think small things don’t matter, think of the last game you lost by one point.”