Three of my favorite financial equations are:
$1.00 ^ 365 = $1.00, or $1.00 multiplied by itself 365 times equals $1.00;
$0.99 ^ 365 = $0.03, or $0.99 multiplied by itself 365 times equals $0.03; and,
$1.01 ^ 365 = $37.78, or $1.01 multiplied by itself 365 times equals $37.78.
These equations, particularly the last, show the power of compounding, which successful long term investors are familiar with.
These equations can also apply to life and help explain the power of tiny, or one percent, daily changes to oneself over the course of 365 days, or a year.
In other words, if I don’t do anything better to what I’m doing everyday for a year, there won’t be any change and I’m not creating value.
If I do something at less than a hundred percent everyday for a year, there’ll only be a tiny three percent change and I’m also not creating much value.
However, if I do something one percent better everyday for a year, the value I create will be a significant 38 times or 3,678 percent!
On the other hand, if I do something one percent worse everyday for a year, the change will be 38 times worse.
Most philosophies on life recognize four dimensions of human nature: physical, mental, social and emotional, and spiritual. Taking the time to make small one percent daily improvements to these four areas adds value to your greatest asset — you — which will make a tremendous difference over time:
Physical — exercise, nutrition, and stress management;
Mental — reading, visualizing, planning, and writing;
Social and emotional — service, empathy, synergy, and security; and,
Spiritual — value clarification and commitment, study, and meditation.
Unfortunately, life throws us many curve balls, which result in many bad days and value destroying decisions.
Nevertheless, like investing, the trick is to do more of the one percent better things and less of the bad things. Even if we can only do something one percent better for half the year,
or $1.01 ^ 182.5,
the value we create for ourselves will still be $6.15, or six times greater.
Each day, we’re either getting better or worse, creating value or not. We don’t have to make huge and difficult changes today to see tremendous progress over the year. We only have to focus on getting a little better everyday.
The content is for general informational and entertainment purposes only and should not be construed as financial advice.