Habits – both good and bad – are something we all have. They’re part of our everyday routines, something we often do without any thought. Yet, we can all benefit by giving our habits more thought. As a financial planner, I love the idea that there’s a correlation between compound interest and habits.
“Habits are the compound interest of self-improvement,” wrote James Clear in his best-selling book, Atomic Habits*.
This idea really resonates with me.
I understand the benefits of how investments compound interest (we essentially earn interest on our interest). The opposite is also true. If we get into debt and owe interest on the interest that is owed, that negative compounding is a detriment.
Good and bad habits work the same way. Years ago, I was in the habit of eating a bag of chips every day at lunch. I love potato chips, but eating them daily wasn’t a great habit. A good friend knew I was trying to lose some weight, and he suggested I substitute the chips with a piece of fruit. It was a small change, but a significant one for me.
The success that came with that small adjustment led me to rethink my daily soda with lunch, as well. Each small change moved me closer to being the healthier person I wanted to become.
“Success is the product of daily habits, not once-in-a-lifetime transformations.” — James Clear
Once you decide to make a change, how do you make it stick? Consistency. Making the change automatic and trying not to miss more than two times in a row are two things that can help.
Let’s use a savings example. I have a friend who had never invested in the stock market. When she began a new job years ago that offered a 401K plan, I encouraged her to have automatic contributions withdrawn from her paychecks. Fast forward about 20 years, and she’d accumulated more than $250,000. Even though she did take some money out of the account along the way, she had still managed to save a nice sum of money for retirement.
We’re all human. We all get off track from time to time. Sometimes we miss deadlines, avoid workouts, or skip saving contributions. Give yourself room to be human. Know that you will have setbacks, and know that you can rebound. Commit to getting back at it as soon as possible.
The biggest rewards come when you have been consistent over long periods of time and your habits compound.