Compounding, the Most Important Rule in Life

Remembering that everything compounds is a good way to think about life in general. This applies to fitness, work and even your friendships/relationships. The bigger issue isn’t so much the dollars in your account going up and down, but the consistency and habits you develop over several decades (yes decades) as a single year is a drop in the bucket (we promise you’ll have some blow out years and some years of near depression). The key is the constant pressure you’re putting on yourself to improve in a particular area. We don’t know a single person who attempted to make it for 5+ years that failed. Most expect a turnaround in a year and it never happens (rare unless born into a wealthy family). So we’ll outline the major things to remember before deciding to go out and drink beers at yet another low quality spot with your friends.

You Don’t Owe Anyone Anything: This is specifically addressed to the 20-year old crowd. The biggest deterrent to your success is the deadweight that hangs on your shoulders right now. If your current set of friends are busy drinking beers on the weekend living paycheck to paycheck, you’re in a bad room. This is because you’re borrowing time from the future to have fun in the present. Realistically, you’re going to revert to the mean. If the average person you’re spending time with is living paycheck to paycheck… this is likely going to repeat… for *you*.

Another part of “reversion to the mean” that people forget… People born into wealth are not going to drag you up. This is probably the most common mistake people make. Just because you’re in an area full of people with money does not mean they earned a dime. While this will certainly work if you’re an attractive female looking for a husband (ie. Gold Digger), it doesn’t work as a male.

So what do you do? The answer is that you only search for people willing to work 60-80 hours a week on practically any business or career. Seriously. If someone is willing to put in 60-80 hours of work per week to live a great life in their 30s, you’ve found the people who will eventually climb out of the gutter. Also. If someone is willing to kill themselves work wise, the chances that they were born rich is a lot lower. The individuals who are born rich are already starting from a higher position and have a smaller amount of “dues” to pay relative to people at the bottom.

Your Relationships will Compound: If you think the above simply means that you should avoid unsuccessful people… it’s much more important than that. If you correctly choose the right people to attach to, that has more value than the money you’ll be making. Why? Well rich people only trust individuals they have known for long periods of time. If you’ve gone up the ranks in real time (everyone around you sees the effort and results), if you ever need to call in a favor they are going to be a lot more open to writing you a check. That goes for a new venture, a new product and any sort of scaled business model.

A good mantra we’ve seen is that your 20s are for learning/working, your 30s are for earning/scaling and your 40s are for delegating. What people forget is that this applies to your relationships as well. You should be scattering the world looking for good contacts in your 20s (no not hostels in Thailand), earning good money because of your contacts in your 30s and delegating to “up and comers” in your 40s.

Your Work Compounds: This is the bulk of the issues in your 20s. The following work related items compound: critical thinking, speed of processing information, speed of understanding information, accuracy of work, type of information consumed and your emotional intelligence.

Starting with critical thinking. If you’re not working to solve problems yourself (looking for solutions from new sources), you end up being a cog in a wheel. It means that you’re being told what to do constantly and are not learning new information. This is the first item that should go. If you can’t come up with your own ideas or conclusions that are self created, you’ll never be a differentiated individual. This seems like a “low bar” but it is an extremely high bar. How many people have 100% of their information taken from other people’s ideas? Probably 99% of the population.

Speed of processing information accelerates. This means you’re given new information and are forced to make a decision. Have you ever met a smart person who takes years and years to decide? No. Why? They have developed rapid information processing speeds. You give them a specific situation and they can typically come to a quick conclusion (and a correct one) without much time spent.

Speed of understanding information refers to obtaining the core concept quickly. When you combine processing information with understanding information, you will see significant gains in all of your performance metrics. Why? It means you’re able to take in new information get to a conclusion and solve the problem at rapid speed.

Pausing for a second we can actually use this blog as a good example. While it is a hobby as a whole (evidenced by no sales funnel, extremely basic design and extremely basic navigation features), the amount of content being produced looks high… looks high to a poor producer! While people talk about making the most “dollars per hour” no on ever asks the most important question… how do you develop that efficiency? The answer is decades of work from the past.

To give everyone an idea, it takes about 1 hour to write 2,000 words. More or less. So we spend about 1 hour on this blog and maybe 30-45 minutes a week tweeting (we don’t tweet all that much). Yes there are always exceptions but that’s the general framework. Now… can your average person write 2,000 words in an hour without much effort? Can they maintain a social media presence with a few minutes a week? No. They didn’t develop any skilled related to information or processing. This is no different than lifting weights. An extremely powerful person can move 500lbs with ease, the same actually applies to cognitive tasks as well.

Accuracy of work. This is another important skill that is completely ignored. While the average investment banker will think this means deleting the tick-marks on graphs and formatting dollar signs appropriately, it is actually an important natural instinct to have. Being able to produce content/value that is nearly error free reduces friction. Instead of going through numerous revisions on a document, presentation or contract, you’re simply proof reading and hitting the send button. This is also why major companies have templates for practically everything, it reduces friction creates consistency and makes “on-boarding” a seamless process. Oh and by the way, when you’re able to produce error free work quickly, you’ll also spot issues in contracts being sent your way!

Information Consumed. If you’re consistently consuming information that is different, you’ll be able to make unique connections. All products are simply a new way of doing something… or a hole in the current market. Simplistically, by making connections across different sub-sets of different markets you can identify new opportunities.

A common question we get is how to “see the next trends”. The only way to do this is by living it. We’ve talked about a ton of trends on here over the past 7-8 years of writing and those that have followed have seen pretty good accuracy. Timing is always difficult but getting the direction correct is certainly the most valuable as “a rising tide lifts all boats”. As always, you’re only going to get new information by trying things yourself and looking at information from unknown sources (if everyone already knows about it, it’s not new or innovative).

Emotional Intelligence. The last one is the real money maker. At the end of the day, there is someone at the top making major decisions. We can talk about machine learning for days but someone is eventually making a decision on where to take their company. Currently, there is no such thing as a company run by robots.

Developing emotional intelligence will separate the millionaires from the non-millionaires. Being able to tell what the decision maker actually wants (and how to offer it up) will separate the yes’s from the no’s. Just like anything else, this takes years of practice and if you’ve worked in sales you have an enormous leg up.

Your Fitness and Diet Compounds: Ask anyone who has been working out consistently for at least a decade. They will tell you that even if they have a set back (can’t work out for a week or so) they are able to get into shape rapidly. Why? Muscle memory is real and no we don’t have any scientific proof for it (just tons of life experience). The same applies to getting in shape in the first place. If you wait too long, the amount of effort needed to get the same results goes up exponentially (compounds).

Another one that is also ignored is your diet. People believe that your diet cannot compound… But… This is simply false. As a good starting point we can say with conviction that if you’ve eaten a clean diet for a decade, when you turn 35 the unhealthy foods will make you physically sick. In fact, at this age you can’t even have a lot of sugar without feeling sick right after the fact. While you’re certainly going to have something unhealthy once and a while, your body is going to reject the food like it is poison. For exact descriptions, your stomach will feel heavier, you’ll get a bit nauseous and your energy levels will go down. The funniest part about it is that people will make fun of you and you won’t be able to relate. Since eating unhealthy food isn’t even appealing despite all the marketing that goes into the sugar and fast food industries.

Another thing we’ve noticed… (people in their 30s) that attempt to work out and “eat whatever they like”… is that they look older. Their skin is not radiant or clean. Health is just like anything else in life, you can’t do “part of it” to offset your other bad habits. You either do everything right and get rewarded or you cut corners and don’t get any of the major benefits. If you’re put together and do everything correctly, you’ll look 5-10 years younger than everyone else.

The Reverse Of Compounding: The last major item is “accelerated declines”. What this means is that you will be fighting an enormous uphill battle in every category if you don’t start today. Putting it into perspective, remember that a 50% decline requires a 100% gain to break even. So if you give up 5 years of effort in your 20s you will likely need to put in 10+ years of effort to make up the gap (all talent related items equal). No. We are not kidding. As a year in your 20s is certainly worth more than double when compared to a year in your 30s (energy perspective). Feel free to believe that drugs will offset your energy levels… Just remember that incredibly talented people already started working hard a decade ago. So. Even the equal speed isn’t enough to gain ground anyway.

Long story short. The one major theme to be taken from anything written on here is that every single year compounds in a massive way. The successful people who are millionaires in their 30s, are not millionaires because of decisions they recently made. They became millionaires at age 20 when they made smart decisions that paid off over 10 years.