ONE SIMPLE HABIT

1.0 COMPOUNDING ACTIONS CREATE HABITS

“Compounding is the greatest mathematical discovery of all time.” — Albert Einstein.

Compound interest is a simple math formula all things considered. We all mostly understand compounding when it comes to our finances but when it comes to creating habits we tend to forget that ONE SIMPLE HABIT is easily cultivated over incremental steps and compounding it.

Compound interest is calculated by multiplying the present balance by 1 plus the effective interest rate per period raised to the number of compounding.

Let’s say you decide to invest INR 1,00,000 and you have the ability to get a 10% annual rate of return. At the end of 1 year you will have your INR 1,00,000 in principal and an additional INR 10,000 in interest. Nothing special. However, as you continue to compound your money, the process starts to behave fractally. How? In year 2, when your INR 1,00,000 once again gives you INR 10,000 in interest, now your INR 10,000 in interest from year 1 will throw off INR 1,000 in interest as well. The INR 10,000 has begun to behave like the INR 1,00,000 did in year 1. And this process continues in year 3 when the INR 1000 in interest from year 2 throws off INR 100 in interest, and so on.

Depending on what side of this relationship we’re on, things have the potential to go either very well or very badly.

Say for a moment we look at this formula in the habit-forming approach. Meaning,

A = ACHIEVEMENT OBJECTIVE, you want to achieve e.g. lose 10kg, start running in the morning etc.

P= PRESENT VALUE OR CONDITION, e.g. My BMI shows overweight or I don’t jog in the morning or I smoke 10 cigarettes a day etc.

r= INTEREST RATE, is how invested am I to start this habit or sometimes stop a bad habit, 100% all in or I’m still 50% probable to do it.

n=NO. OF INTERVALS, I will do this task daily, weekly, yearly etc.…e.g. I will run every day in the morning or I will smoke only once in 2 days to start with etc.

t=TIME, how long I am going to commit for this task, I will run everyday morning for the next 6 months.

The more often the interest is compounded, the greater the total, which is where we have to be careful what kind of habit is getting created a Good habit or a Bad one, as it’s all about compounding the benefits. The more times we compound, the greater the value for n, the more we will owe in making a habit.

So, in order for a good habit to become sustainable and enjoyable, that part — the getting started — must not be sudden. It should be made increasingly automatic. When consistency is the problem, it is far better to commit to practicing for just 5 minutes or less a day and succeed at it, but doing it regularly and then slowly add to the habit.

Dr. BJ Fogg, at Stanford stresses the importance of starting small in his practical theory course “Tiny Habits.”

To make a habit like practice stick, he says, we must make it small enough for it to be unfailingly consistent from the very beginning. Floss just one tooth, he suggests, do just two pushups, walk for three minutes, drink just one glass of water each day, write a single paragraph, or perhaps, practice just one measure of music for 5 or 10 minutes.

The goal at this point is not volume. The goal is to make the habit automatic. So, we need to start by setting ourself up to succeed by giving ourselves goals that are easy to meet.

Writing a little bit every day and at the end of the year we’ll end up with a book or two. Putting some money aside regularly and after 12 months we’ll have enough to pursue something we deeply care about.

It’s also true for businesses that aspire more than ever to grab their consumer’s attention and keep them hooked onto their products. Well, habit forming businesses are not formed overnight but by giving consumers what they need and being dynamic enough to keep them engaged and hooked onto their brand. There’s no doubt that these are small incremental changes and multidimensional. Habit-forming businesses are therefore highly motivated to hook customers - and keep them using their products for as long as possible. Customer acquisition costs are higher today vs. they were earlier, but compounding actions to keep current consumers engaged with your brand will definitely help marketers introduce new products or expand brands easily.

There’s no magic bullet here! We’ve got to embrace the process and enjoy it. We can’t escape the hard work it takes to get better.

The beauty of compound interest is that it continues to behave fractally with each piece of interest eventually earning its own interest.

Speaking of fractals, next week, I pick another example from design, explaining compounding -how each piece of interest eventually earns its own interest.

Till then, "Which is the ONE SIMPLE HABIT, you are going to compound?".