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November 17, 2015

Compounding interest is a powerful thing. Understanding it can make you a wealthy person over the course of your lifetime.

But money isn't the only thing that compounds over time. I've discovered that there are a number of things (some financial and some not) that can bring compounding benefits into my life. Often times I can set up these systems and forget about them, while they continue to work tirelessly day after day to improve my life.

A good example of this is productivity improvements. Whenever my organizational systems are not working well for me, it reduces the amount of free time I have in a given week. So, when that free time comes, I have a choice: Do I use it to knock some items off my to-do list, or do I invest it and try and fix my broken organizational system?

I use the word invest deliberately because that's what it is: an investment. If I improve my productivity, my time invested will not only pay for itself, but will pay dividends over time. Life is too short to be running on unproductive systems, burning time and effort doing things we don't need to. Even the best among us could be doing better at this.

But improving productivity is only one example of something that provides compounding benefits. Here are some others I've found.

  • Education - This includes tertiary education, but it's a lot more than that. A big reason I wanted to work at Sparkbox was because of the emphasis they put on continual education. If I go to work every day and learn new things in my industry as a side-effect of my work, the benefits will accrue.
  • Consistency with children - I've found that my kids can take care of many of their own needs if I'm consistent in that expectation. This saves me time but more importantly, it makes for responsible humans.
  • Critical moments - Even more important than me learning new things is growing your capacity to DO more things. Seeking out critical moments will pave the way for opportunities down the road.
  • Habits - The most powerful thing about habits is once you have created them, it takes very little effort to maintain them (this is the force behind that consistency with kids thing I mentioned). For example, I ride my bike 10 miles a day as part of my daily commute. It gives me an hour of cardio (and personal meditation time), and I don't have to motivate myself because it's baked into my routine. Some other habits I'm working on include weekly goal-setting, low-cost living, and generally eschewing the hedonic treadmill.

Many of these things, like financial investments, are best established early in life because it leaves the most time for the benefits to compound and accrue. As my favorite financial advisor says:

"By the time you get to my age, almost all of the features of your daily life, both the jewels and the turds, gifts and shaftings, are things deposited on the Conveyor Belt of Time by earlier versions of you. You have your Past Self to thank for all of this. But until you acknowledge that, you can never become the generous benefactor that your Future Self deserves."

It not all about the big choices either. I recently listened to a podcast where  Tim Ferriss describes the most important questions he asks himself. I found his answer relevant:

"Which of these [items on my todo list], if done, will make the rest of them easier?

"I'm looking for the lead domino... the domino at the front that once tipped over will help make all the others happen automatically, make them all much easier to do, or make them irrelevant."

He's talking about todo items, so they don't have to be big weighty matters like "education". Just getting in the habit of looking for those "lead dominoes," on your todo list sounds like a promising way to get in that future-focused habit.

If you aren't already optimizing for compounding benefits (both big and small) then it's like they say: "The best time to plant a tree was 20 years ago. The second best time is today."