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Habits are the compound interest of self-improvement.

James Clear, Atomic Habits

When looking around and seeing how successful people become who they are now, I always wonder what were those critical steps that got them there. What were those defining moments in their lives where they jumped a level? Where they went from average to great, or great to extraordinary?

When I’ve asked these people these questions, they seem to always talk about the little things. How they made it a habit of always transcribing their notes after meetings. Or how they always took extra notice of new people they were introduced to and wrote down an identifying characteristic so they wouldn’t forget their names.

Those little actions over time proved to create huge returns. These people always knew what to do and how to move projects forward. And there was this one person who always knew people’s names and could talk with them so easily as if they were best friends. It drove me crazy how they knew all this after having met the person once!

Then I started to realize that they made specific habits to help them grow and develop their personal and professional lives. Self-improvement is gradual. As the old saying goes, “Rome wasn’t built in a day.” But the great thing about habits is that they build on each other.

The same way that money multiplies through compound interest, the effects of your habits multiply as you repeat them.

James Clear, Atomic Habits

Financial

Compound interest is something that every financial advisor worth a dime should preach to you as a good thing to go look for. How do you get compound interest on your side? Time. You have to be invested for a long enough time to let your money accrue interest on the returns from previous years. That’s how it works.

But there are habits that can be developed around finances that, when compounded, can greatly grow your net worth. For example, I try to not carry any balance on any credit card… ever. I always pay off the entire statement balance in full and on time every month. Why is this a good habit to get into?

Because when I forgot to pay on time and in full one time, I got hit with a big interest fee because I carried a balance, also known as I got an automatic loan from the credit card company at ~24% interest. That’s insanely high! (BTW, money market account interest rates are below 1% and mortgage interest rates are ~3% at the time of this writing).

Not only was I upset about the extra fees I had to pay, but my credit score also took a hit because I failed to make a payment. I got punched twice in the gut by carrying a balance and missing a payment. Two things that can really knock down your credit score.Like Albert Einstein said:

Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t, pays it.

In this case, I was paying it. I messed up and my financial picture got a red blot on it. What did I do after this? I made a habit to not pay compound interest but to focus on receiving it. I set up automatic payments for all of my accounts AND I set up automatic deposits into my brokerage accounts to invest my money.

From those two automated habits, I have saved and made more money than I ever could have done without setting up those processes. I learned to create a habit to prevent that from happening again.

All Other Areas

There isn’t one part of my life where habits are not constantly compounding on each other. As I described in the story about my credit card mishap, habits can compound positively or negatively. Either way, they always compound.

I want to improve my efficiency at work, so I made it a habit to write down my meetings for the day and the top priority tasks to work on that day. I want to improve my fitness, so I made a calendar where each day has a workout I should do. When I complete the workout, I cross it out to show the progress I am making to myself.

I want to be a better husband, so I made it a habit to compliment her as much as I can and always tell her I love her before we fall asleep at night. One other thing that we have promised each other is to never fall asleep angry, frustrated, or annoyed at the other. This helps in so many ways, but the biggest is that it doesn’t compound the problem.

We try to nip the negative feelings in the bud and not let them last into the next day. That way those damaging feelings don’t compound and decline our relationship little by little. In my mind, preventing the decline of my life is just as good, if not better, than working to improve my life.

It’s The Small Things That Make The Biggest Difference

Successful habits are usually small little tweaks to your life performed over and over again. Like Darren Hardy said in his book The Compound Effect:

Success is not doing 5,000 things really well. Success is doing a half dozen things really well— 5,000 times.

Over the span of an entire month or year, you can really change your life if you focus on just those 5-6 things you want. How do I know this? Because this year, that’s all I’ve done. I’ve focused on my top 6 priorities and made sure every months’ activities relate in some way to those top 6 goals.

And what have I seen? In the last 9 months, I have gotten fitter, read more books, had a successful COVID wedding, grown my relationship with my wife even more, increased my net worth by transferring jobs to get a 25% pay increase, and organized my household chores into habits.

Now I feel myself growing without doing any real heavy-lifting (unless you count the weights in my workouts 😉). I will achieve these goals because I’ve set up habits that put positive actions on auto-pilot and stopped negative actions from reoccurring.

Where are you in your yearly goal progress? Are you on the right track heading into the last quarter of the year?