“Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t pays it.”
-Albert Einstein
Any personal finance writer worth their salt has likely beaten the topic of compound interest to a pulp. If you’re unfamiliar, you can read more here. Here’s an example: when do you think Warren Buffet made his fortune? In his 20s, 30s? He’s made the vast majority of his wealth after turning 60 years old. That’s the power of compound interest financially.
But I’m not a personal finance writer. And compound interest, to the surprise of many, does not accrue only financially. It can have a meaningful impact on every area of your life.
Take the common situation of someone wanting to lose weight. Feeling motivated, he signs up for the local gym and begins the latest juice diet. Soon enough, he is working out like a maniac on the elliptical every day and hasn’t eaten solid food in weeks. Then, all at once, he crashes. And when he does, the weight comes back seemingly in the blink of an eye. He becomes discouraged, back at square one.
How about the equally common job-hopper. Feeling she is underpaid and overworked, she finds a new company that will pay her 5% more. Great. The next year, she feels the itch again. My boss sucks, the processes are annoying, my commute is terrible – let’s look again. On and on the cycle goes for years until she realizes that several of her past companies have had major success and her former colleagues have struck gold – as she was looking for new jobs, they had committed to the process and became wealthy through the company’s success.
Okay, one more. We all know that guy that seemingly has a new girlfriend each week. In what is seemingly a parody of Seinfeld, there is always something not quite right with each woman he meets. What started off as a playful characteristic as being a “lone wolf” or a “player” turns into a sadder story over time. Following the same logic in the above scenarios, we can guess where this likely ends up – the “fun” he had early on has left him in a vulnerable position, wondering “what if”.
So now we have two questions to answer: why do we play these short term games and what’s the better alternative?
I’ll tackle the first one quickly. It turns out that our decision making tends to fall on our two conflicting brain regions. In short, we all have an emotional and logical part of our brain. When faced with a choice with a short term and long term gratification option – a cookie or broccoli – our decision depends on which region of the brain wins. We know we should have the broccoli but we really want the cookie now. It’s generally easy to make the emotional, short term gratification decision. That’s why so few of us are playing long term games.
Okay, now the fun part – What’s the alternative to these situations that end painfully? My proposal is to take advantage of compound interest by playing long term games.
First, let’s take a step back. If you’re reading this, you’re likely a millennial. Which means that you could logically be alive for another 65 to 75 years. You’re roughly only a quarter through your life, with the vast majority of the time so far spent in school and not really concerned with these types of conversations. Even in the case of people reading this that are in the baby boomer generation (hi mom!), you still could only be 60% through life with another 40 years to go.
Either way, that’s a long ass time. With all of the news constantly hyped around wars and shootings and drug overdoses, we think that we have a short time to live. And maybe we do. But it’s far more likely that you have more time than you think – and if you plan for it, you can really take advantage of this fact.
Let’s go back to our original scenarios. We know what can happen financially if we take some cash now and invest slowly but surely. It’s life-changing money. Similarly, we can take that approach with our business, relationship and health buckets in life. What if, instead of focusing on a crash diet for a month, we set a goal to go to the gym 3x/week for an entire year (or 5 years)? What if, instead of jumping jobs each year, we found a company we could get behind and wrote ourselves a contract to stay for 5 years? What if, instead of hopping from one relationship to another, we dropped our guard and let people know who we really are?
I recently heard famed investor Naval Ravikant call this “playing long term games with long term people.”
First, let’s flip that equation. Find your long term people or a long term goal. An example of this could be your boyfriend, your current (or desired) company, the skill of painting, or being the healthiest version of you. Financially, a long term game is investing in the S&P 500 consistently for decades without flinching. In these other cases, it is consistently investing in the people and goals that will continue to benefit you for a long period of your life.
Once you find those long term people & situations, it’s time to play a long-term game. Playing long term games means that you are delaying gratification in the short-term for a long-term payoff. And when I say long-term, I mean it – it could easily be 10, 20, 30 years before there is a real payoff. Just as famed soccer player Lionel Messi said that it “took him 17 years and 114 days to become an overnight success”, this may be your path as well.
“It took me 17 years and 114 days to become an overnight success.”-Lionel Messi
You ignore a small annoying task that you have to do at work because you know this place is a damn rocket ship. You dismiss the voice in your head telling you not to work out because you made a promise to your future self that you would do it. You’re OK with scrolling past the “get rich quick scheme” ad on your Instagram page because it is now less tempting than stale bread. You’re good.
Because you’re playing long-term games. While they play checkers, you are not only playing chess but becoming a master. You know there is a long road ahead and the most gold is at the end of a long rainbow. The long game is where people get wealthy. The long road is where people in their 50’s are in better shape than they were decades ago. The long road is where you master a craft and are able to do what you love at a high level. The long road is being in a beautiful relationship with others and with yourself. Everything you could ever want can be found through the long road.
Last week, I created a new rule for myself: read a book, send a book. I decided to send out 26 books because last month was my 26th birthday. If each book is about $12, this is over $300. You’re spending $300 on books? No. I’m spending $300 on relationships. I’m spending it on the long game.
My long games include my physical and mental health, my future wealth, my family, my girlfriend, my close friends, writing and leading people. What are yours? As they say, the best time to invest was 10 years ago and the second best time is right now.
So it’s time to make a decision. Are you ready to play the long game?
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