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Profiting From The Compound Effect In Your Life

Profiting From The Compound Effect In Your Life

Whether you like it or not, the compound effect is at work on your life at all times. You simply have the choice of whether you profit from it or use it to destroy your health, wealth, and relationships.

The compound effect is the idea that small actions build up over time. Imagine you had the choice of taking $1 million dollars right now or a single penny that doubled in value every day for 31 days. If you picked the penny, you’d have $10,737,418.24 on day 31… not a bad return.

However, the compound effect has much more far-reaching consequences than a nice story. It’s the fact that your daily habits add up to an amazing difference over time. And that’s the trap we have to avoid… and make the most of at the same time.

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The Fast Food Generation

We live in a world where most people expect instant gratification. That’s why there are so many diet books claiming you’ll lose ten pounds in just 3 minutes, and get rich quick schemes that promise you can push a button and make thousands of dollars a day.

They exist because we’ve been trained to want everything instantly. Why develop healthy eating and exercise habits when we can use a fad diet or just get the fat sucked out of us? Why work to build your wealth when you get become an instant millionaire buying a lottery ticket?

The reason is that instant gratification approach doesn’t work 99 times out of 100… or in the case of the lottery ticket a couple of million to one.

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The Real Way To Make More Money

If you want a proven formula for making more money it’s called the compound effect (also known as patience). It’s the fact that all the little actions we take will add up to big results over time.

Success is not actually about a herculean effort over a couple of months or a year. Every “overnight success” story you hear fails to mention the years spent preparing for the overnight success. The basketball player who practiced every day, the business owner who worked on their idea for years, or the property investor who spent their weekends looking for deals.

Make More Money With Very Little Effort

Results come from the small changes we make in our lives. If you want to make some extra money by starting a business, then you can quit your job, invest your life savings, and put everything on the line. Another option is to keep your job and build your business part-time until it replaces your income.

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Imagine if you decided to start a new business, invest in real estate, or invest in the stock market. If you dedicated just 1 hour a day to this new pursuit you would have invested 365 hours after a year and be well on your way. After 5 years that would be 1,825 hours that you’ve put towards building your extra income source.

Don’t think you have an hour? You can try learning on the commute to work instead of listening to the radio or cutting out an hour of TV/Internet a day. Everyone has the same 24 hours, and it’s up to you to choose where they get spent or invested.

How Your Results Compound

The time you invest in making more money will also compound. For the first couple of months with your new business, you’re not going to know anything and your results will probably reflect that. Yet, over time, you will work out which skills you need to improve and be able to focus on those.

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When Richard Branson invests an hour into his businesses, it is very different to the hour you invest. This is because he’s built years of experience and just understands business at a much higher level. However, he got there by doing his first business calls from a payphone, working from a basement, and figuring things out as he went along too.

Everyone Has To Start Somewhere

If you want to make more money, quit your job, or build a passive income, you need to start somewhere. The good news is that, with the internet, it’s very easy to get access to the information that you need and even start an online business in your spare time. All you have to do is put in your time, learn, and take action.

By deciding to start today, you will start to build up the compound effect for yourself. But don’t start chasing after get rich quick schemes or push-button solutions. Every time you change your strategy, you give up the momentum you’ve built with the compound effect.

Do your research and choose a path… then stick to it. Have patience, as you won’t start making huge amounts of money overnight (that’s just promised to sell you the get rich quick scheme). But with time and effort you can create an income that many people dream about and few people achieve.

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Published on September 17, 2018

How Being Smart With Your Money Leads to Financial Success

How Being Smart With Your Money Leads to Financial Success

Achieving financial success is not something that just happens. Maybe if you win the lottery or something, but for the average person like you or me, it comes from a series of small steps you take over a long period of time.

With each step, you form a new smart money habit. And with each smart money habit, you build towards financial independence.

So what sort of habits can you form to get on that path? Let’s take a look at smart money habits you can start today to get you closer to a financially independent future.

1. Avoid being “penny wise but pound foolish”

It’s tempting to try saving a couple cents here and there when buying small items. However, that’s not where the real money is saved. You’re putting in extra effort for something that doesn’t move the needle.

You get the most bang when you’re able to cut down on your bigger bills. For example, finding a lower interest rate for your mortgage could save you $50+ per month. And cutting your transportation bill by purchasing a cheaper car or taking public transportation can provide large gains as well.

So, look at your recurring expenses such as housing, transportation, and insurance, and see where there’s wiggle room. It’s a much better use of your time than trying to pinch pennies here and there on smaller purchases.

2. When you want something big, wait

Impulsivity can get you in trouble in most aspects of life. Finances are no different.

It’s human nature to see something and want it right then and there. It starts as a kid in the checkout line at the grocery store, and it continues on through adulthood.

We get an idea in our head of something we want, and it’s hard not to go out and get it right then.

A good example is wanting a new car. Perhaps you’ve had your car for several years. It’s crossed the 100k mile mark. Maybe maintenance is due, and you’re annoyed that you need to replace the timing belt or purchase new tires.

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So, you get the itch.

You start digging around online, and you realize you could trade in your current car for something newer and more exciting… all for a few hundred bucks a month. Then you get obsessed.

Here’s where you have to take a step back.

Your newfound obsession is clouding your judgement. Rather than giving into the impulse, wait it out.

Set a timeframe for yourself. Maybe you come back to the decision three months down the road. See if the obsession lasts.

It might, but often, a funny thing happens. Often, you forget about it. And often, you find that the new car wasn’t a need at all.

The impulse faded. And you just saved yourself a ton of money.

3. Live smaller than you can afford

You finally get that big raise. And you want to celebrate – and why not?

You’ve been looking forward to this forever. And after all, it was all due to your hard work.

That’s fine, splurge a little. However, make it a one-time deal and be done.

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Don’t get caught in the trap that just because you’re now making more money, you should spend more.

Too often, people get more money and feel like they that gives them the means to buy a bigger house, a bigger car… you know the drill. Resist.

The fact is that living smaller than what you can afford is one of the fastest ways to build savings.

But if you constantly upgrade as you begin to make more, then you’ll never get ahead. You’ll just build up more debt along the way and have just as little wiggle room as before.

4. Practice smart grocery shopping

Food… it’s one of the biggest portions of any budget. And if you’re not careful, it can be one of the biggest drains on your wallet.

But luckily, there are a few things you can do to ensure that you stay smart with your money when buying groceries.

Create a grocery budget

Set a strict weekly grocery budget. When you know how much you can spend on groceries, you can then plan your weekly menu around it.

Once you know what all you need, you can go shopping and keep a running tally as you shop to ensure you’re on track.

I tend to do this in my head, rounding for each item. However, writing it down as you go would probably work best for most people.

Make a list… and never deviate

Never go to the grocery store without a list. If you go to the store with a ballpark idea in mind, you don’t have a true ide of what you need.

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You’re not well-researched. You don’t know what the sales are. As a result, you’re going to make decisions on the fly.

These impulse decisions will lead to overspending, which will derail your grocery budget.

Eat before going grocery shopping

It’s also important to eat prior to going to the grocery store. Hunger is a powerful force.

If you’re shopping on an empty stomach, everything is going to look good. In particular, you may find a lot of ready-made, processed snacks will look enticing.

After all, you’re hungry now and that food is easily available. So subconsciously, you may lean towards those items.

Unfortunately, not only are those items typically less healthy, but they’re likely more expensive. You pay for convenience.

However, when you eat prior to shopping, then you’ll shop with a clear mind. Your hunger won’t cloud your judgement, influencing you to make poor decisions like a cartoon devil resting on your shoulder whispering in your ear.

This makes it much easier to stick to your grocery plan.

5. Cancel your gym membership

Now that you’re all set on your food, it’s time to get smart about managing your budget in terms of physical fitness. And let’s begin by avoiding the gym. The gym bill, that is.

The average gym membership costs around $60 per month. That’s $720 a year.

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Yet, two out of three gym memberships go unused. That means two-thirds of people who have a gym membership are literally giving away almost a thousand bucks a year. It’s crazy!

I recommend seeking an alternative. One good alternative is to look into fitness streaming services.

Streaming services allow you to stream hundreds of workouts like Insanity and p90x, right in your own home for around $10-20 a month. That’s $40-50 less a month than the average gym membership.

Of course, then there’s the free option. The internet is full of free workouts that you can do on your own with minimal or no equipment.

For example, there’s the Couch to 5K program, that I personally used a decade ago to ease myself from couch potato to running my first 5K race. If I could do it, anyone could.

Then there are free resources like reddit that have limitless information on workouts. The Fitness subreddit has done all the research for you, populating workout tips and detailed workout routines for anyone to use in their wiki.

There are several routines that require no equipment. And you can join in on the subreddit to become part of the community, making it easier for those seeking comraderie and encouragement in their fitness goals. All for free.

It’s baby steps… And baby steps can start now!

I’ve never met anyone that can’t stand to be a bit smarter with their money. And on the flip side, anyone can get smarter with their money. But remember, it doesn’t happen all at once.

Begin by fighting your impulses. Prepare for the week and be smart at the store. And cut monthly expenses like gym memberships that are overpriced and you probably aren’t getting your money’s worth out of anyway.

The devil is in the details. And the details can change your lifestyle and prep you for a financially independent future.

Featured photo credit: Unsplash via unsplash.com

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