“All the benefits in life come from compound interest — money, relationships, habits — anything of importance.” (Naval Ravikant)
Compound interest is one of the most powerful forces in the universe. In finance, in your habits, and throughout life, this idea has transformative power like nothing else. To illustrate, think about a simple investment equation. If you take an initial sum of $40,000 and invest it at an average rate of 10% over the course of 40 years, you will become a millionaire.
But here’s the kicker: when you look at the composition of your new 1 million dollars you will find something interesting. You would have $40,000 of your initial investment, $136,000 of simple interest on the principle, and a whopping $869,000 of compound interest. The principle of compound interest applies not only with money, but to every meaningful area of life.
The biggest benefits in life come from compounding interest. Relationships, habits, money, success, and growth are the result of making small investments in the right things and watching those investments grow (on top of each other) over time.
As a leader, you must think like an investment manager—you must ensure the growth of your team by directing them to invest in the right things.
Here are three “investing” principles that will allow you to harness the power of compound interest which will lead to exponential growth.
The first principle of investing is simply to invest consistently. Those who consistently make small deposits will reap the exponential benefits over the course of time. Investing consistently allows your investments to grow on top of your investments—this applies to your resources, people, and leadership.
Think about this concept through the lens of a basketball team. When a coach invests in helping his player become smarter, more skilled, and a better teammate, that initial investment by the coach not only benefits that specific player, but the entire team. That player is now more equipped to multiply the coach’s influence throughout the group. The principle of multiplication is a powerful force. The more time, energy, and care that you invest in the lives of people around you, the stronger your team will become.
Invest Your “First-Fruits”
In the world of finance, psychologists have come up with a nifty trick to help people save more money. They call it the “pay yourself first” principle. Research shows that people who pay themselves first (i.e. saving money by having it automatically taken out of their paycheck at the beginning of the month) will save more than people who are required to make the decision voluntarily. When people make the decision to save money ahead of time, they will not fall into the temptation of overspending in the future.
So it is with leadership. Leaders who invest their “first-fruits” have made the commitment to invest the best they have to offer into their teams. Effective leaders don’t wait to give their key assets their focus, time, and energy until they are distracted, hurried, and tired. Leaders that give away their first-fruits consistently give away the best they have to offer to those who need it most.
Invest in the Long Game
Successful investors play the long game. They are not held captive by the ups and downs of the market, but rather focus on generating consistent returns over the course of time.
Compound interest is accrued—in money, life, and leadership—when you make a regular deposits over the long-term. Leaders (and investors) can easily get caught up in the latest trends or the excitement of short-term results. Real value, growth, and impact is found in a leader who makes decisions today that will pay dividends tomorrow.
Ask yourself these three questions:
Am I investing in my team with consistency or sporadically?
Am I investing the best I have to offer or my leftovers?
Am I investing with short-term or a long-term mindset?