It will help you make every self-help book work for you. It's THE ANSWER and it’s not 42!
"I wish you knew this"
During a writing exercise at work, I had to write some advice for my 10 years younger self. I wrote:
“if there’s just one concept that you need to understand and learn, it is Compounding.”
Just like learning to learn is more important than just learning a particular skill, understanding the concept of compounding can benefit you in many different areas of life. It will not only help you acquire wealth, it can also help you acquire knowledge, health and wisdom. And that is the path to acquire happiness, the secret of life, universe and everything.
But what is Compounding?
This is the formula for calculating Compound Interest:
- A – The final amount you get
- P – The Principal, i.e. what do you start with.
- t – the duration for which the interest is being calculated
- n- No. of times the interest is compounded per year
- r – Rate of Interest (We’ll look at re-defining R in the formula)
Amount and Principal are fairly obvious.
t, the duration, is also quite straight-forward. Its power comes from n, the number of times it is compounded. It helps if you do things in small doses on a regular basis to contribute to a huge outcome. Build your retirement corpus via regular savings or strength via a habit of doing 10 push-ups every day. It becomes increasingly easy as you do something more often.
It's just 'drip-drip-drip'.
Once a habit is formed, your brain will demand more of the same and you will need effort to stop!
A Systematic Investment Plan should be called a Simple Inertial Plan. Once initiated, it keeps working unless you do something to stop it. Even if you don’t do anything to your portfolio, most people make some gains. That's one type of investor.
There’s another category of investors who continuously keep fiddling with their portfolio, to try and maximize returns. They pay hidden costs in taxes and charges. The additional profit they make could get nullified by these costs.
There’s a third category. Investors who avoid frequent portfolio changes but also don’t leave it untouched all the time. They keep reviewing their investments at regular intervals and make changes, as and when required. In the long run, these investors get the highest returns.
If you follow drip-drip-drip, you are off to a good start. How much and how fast you gain, however, is a Goldilocks problem: you have to do it regularly and just about right.
Now, when you try to apply the concept of compounding in the context of learning something or building habits, think about Rate of Interest as Rate of growth or change. Trying to become a better writer? Your drip-drip-drip could be writing 100 words every day. But will you become a better writer if you just write 100 words every day for the next 100 days? No. You need the equivalent of reviewing your investment strategy – this is Reflection.
While the drip-drip-drip is on, you must reflect on what you wrote in the last week, ponder about what you want to improve in your writing style and plan for implementing these changes in the coming week. This will make you a better writer and that well-written full-formed book is nearer than you think.
In the Compound Interest formula for growth, R is Reflection.
This kind of reflection is at the heart of Deep Practice where you reflect upon what’s working (and do more of it) and what's not (and do less of it). 10,000 hours of practice doesn’t make a genius, 10,000 hours of deliberate practice does.
Author-cartoonist Scott Adams talks about the importance of systems versus goals. Focus on building habits and doing things regularly to become the person you want to be and live the life you want to live. There are many such books and thinkers who talk on similar lines – everyone talks about the importance of drip-drip-drip.
Most of these thinkers don’t talk enough about the importance of reflection. This must be like the challenge great players have when they become coaches or captains – the mere mortals in their teams just can’t do things that the greats are capable of. Cristiano Ronaldo might practice his free-kicks for 2 hours every day, just like his team-mates. The difference probably is how Ronaldo thinks after those 2 hours, how he reflects upon what to work on, what to do more of and what not to do the next day. Ronaldo himself might not be able to articulate the difference that the reflection brings to his practice and eventually, his game. If you ask him for a step-by-step manual on how to hit better free-kicks, all he’ll probably tell you is to practise taking free-kicks for 2 hours every day. Similarly while all the great thinkers have benefited from drip-drip-drip, they probably assume everyone does the reflection bit as well as them.
So, here's the thing that you are likely to miss:
Reflection needs to be a habit as well.
Reflection also needs a drip-drip-drip. You need to practice it regularly and reflect upon how you’re doing it, what do you need to do better. To reap the benefits of compounding in your life, drip-drip-drip is a necessary but not sufficient condition. Similarly reflection without practice grounds and action is useless.
Drip-Drip-Drip and Reflection make a powerful combination. Do that often and you have a much better chance at becoming the person you want to be.
Whatever you are working towards: becoming a leader, leading a more deliberate and mindful life, becoming a better reader or writer, becoming a better tennis player, becoming a better parent, spouse or friend, becoming a better speaker – you need both Drip-Drip-Drip and Reflection. Let that be an integral part of everything you do; that’s the secret that will let you make every self-help book work for you. It’s the secret of life, universe and everything.
Not everyone who started reading this post will complete it. The sense of unease that comes from self-realization can be disconcerting and many people prefer to avoid the discomfort (of reflection and the subsequent actions) that follows. So if you are with me till now, I’m sure reading this will make you reflect upon your life, all the different habits you have been trying to build and attempts at becoming a better leader, friend, parent - a better version of you. What you’ll need next, though is a trigger to do this more often – reflect on a regular basis so that it becomes a habit.
And as a way of thank-you for reading till here, let me point you to Pause at Yellow – it will help you reflect better and more regularly.