Warren Buffet has an interesting principal he follows.
At the end of each year, a company gets to decide what to do with their earnings. Some companies issue a portion of the money to their shareholders; this is called a dividend. Most investors love it, in fact some design their portfolios to exclusively invest in companies that provide annual dividends. Warren on the other hand? He HATES investing in these companies.
Why? When you receive a dividend, you realize gains, which means you have to pay taxes each year.
Warren would rather the money was reinvested into the business to help it grow.
First off, this allows him to avoid taxes for as long as he can. But if we remember the rules of compounding, it allows his money to stay in the system and work even harder. Warren wants to be taxed only once, at the very end when the journey is over, not throughout.
But once your money is in, we want to optimize towards growth – this means paying as little as possible.
“The objective is to buy a non-dividend-paying stock that compounds for 30 years at 15% a year and pay only a single tax at the end of the period. After taxes this works out to a 13.4% annual rate of return.
Charlie Munger, 1998
If you invested $10,000 with Warren Buffett, at his annual rate of return of 23%, the following chart shows you the amount you’d have in 30 years, based off if you paid taxes each year versus allowed the money to keep compounding.
Assumes 23% compounding annual rate, blue line allows money to compound, red line removes taxes at 35% rate each year It’s worth noting that these are extremely high rates of return, and the average investor can expect to get closer to 8% ARR
Breaks vs BRAKES
Breaks are healthy – they allow us to recover and admire our results.
Trouble comes when we allow a short break to turn into hitting the brakes (that is, stopping completely).
Here’s what what I mean:
Health – When we feel physically in shape, we decide to stop exercising – a few days becomes a few weeks
Learning – When we believe we’ve mastered enough, we decide to stop learning – binge reading becomes binge television
Relationships – When we sense our connections are strong, we decide to stop building them – personal texting becomes singular social media posting
Warren’s principal reminds us of the power of pausing too often or for too long.
Once you stop showing up, you stop gaining.
Keep It Going
You’ve decided to start (that’s great!), but don’t underestimate the importance of continued hustle. The laws of compounding don’t care if you’ve had a bad day, or it’s a busy week.
When we decide to follow through, we continue to gain, period.
So wherever you are, keep it up, and just like Warren you too will enjoy the aggregation, not of a single year, but an exponential 30 years.
Getting up when others won’t is what makes all the difference.
And who knows, that determination might be worth an extra $2.8M dollars, in whichever domain you’re compounding.
Last week Jack Bogle passed away. A true financial great, Jack made some of the most pivotal contributions to finance and investing throughout his career. Don’t just take my word for it, even other legends agree:
“If a statue is ever erected to honor the person who has done the most for American investors, the hands down choice should be Jack Bogle.
In his early years, Jack was frequently mocked by the investment-management industry.
Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.”
In this writeup, I outline my favorite Jack Bogle lessons, all of them have applications outside of money management and may be applied in wider ways across your life. The quotes within are taken from, “The Bogleheads’ Guide to Investing“
Compounding Interest
The best gains in life grow in a compounding fashion; returns continue to grow on top of prior returns. The amounts your money can earn in Year 1 will be far smaller than year 2, year 3 or year 5.
A comparison of two investment accounts. The first starts with $10 and grows by $1 everyday. The second starts with 1 penny and doubles everyday. The penny will be worth more by day 13, and by day 16 (shown above) the compounding account will be worth 13x that of the linear one.
“It may not seem like a big deal, until you realize that every time the money doubles, it becomes 4, then 8, then 16 times your original investment.
Start with one penny and double it every day, on the thirtieth day it compounds to $5,338,709.12.”
LESSON: Most people search for linear gains. Instead, set your pursuits on investments that can yield compounding results.
If your young, your greatest advantage is starting earlier than your competition. “The best time to plant a tree is twenty years ago. The second best time is now.” The old proverb goes. At face-value, a few years doesn’t sound like much, until you account for compounding interest.
If you contribute $1,000 each year into an investment account, which compounds at 7% each year, above is the final balance youâd have by age 67, based off what age you start.
“Letâs assume a child is born today. For the next 65 years, she or her parents will deposit a certain amount into a stock mutual fund that pays an average annual return of 10 percent.
How much do you think they need to deposit each day in order for her to have $1 million at age 65? Five dollars? Ten Dollars?
In fact, a daily deposit of only 54 cents compounds to more than $1 million in 65 years.
It really helps to start early.“
LESSON: The most important thing you can do is start today. Forget about the marginal progress you’ll make on Day 1, it’s the fact that you got off the couch and began that matters most.
The common-person thinks the only path to wealth is to generate more income. While making more money can help, there’s a second part to the equation, one which is often times ignored: minimizing costs.
“Reducing your spending [costs] is financially more efficient than earning more money.
For every additional dollar of earnings you plan to save, you will likely have to earn $1.40 because you have to pay income taxes.
However, every dollar unspent can be invested [immediately for compounding gains].”
LESSON: While most people focus on gains, you should also consider the power of subtractions. You don’t need to add another book to your reading list, you need to remove one not servicing your needs.
Index Fund vs. Fund Managers
Choosing a single winner is far harder than it may appear. While markets are meant to show the “real value” of an asset, it’s nearly impossible to predict their future value. You’ll fare much better by holding the entire market; when the economy wins, you win too.
The fastest way to get rich in the stock market is to own the next Microsoft. The fastest way to lose all your money is to own the next Enron. Identifying them in advance is impossible.
However, you donât have to identify them in advance to make a healthy return on your investment. If you buy an S&P 500 index fund, your investment is highly diversified and its performance will match that of 500 leading U.S. corporationsâ stocks.
Over 10 years, the average expert-picked stocks were up an annualized 8% compared to the market index return of 9.5%.
A 1.5% difference may not seem like much, but compounded over a lifetime it makes a tremendous difference.
LESSON: Don’t waste your time trying to find a needle in a haystack. Sure you may get lucky sometimes, but odds are you’ll fare better by holding a small piece of everything. Worry about getting the market (macro) right, not the stock (micro).
Written by David Tillem on May 17th, 201810 minute read
Relationships: A Simple Way to Stand Out
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We are in a period of time where people all over the world PERCEIVE that they are the most connected they have ever been.
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This is only partially true. Â
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Facebook lets you see that your old roommate from college just had a baby, but did you write them a letter to congratulate them? Did you even send a text? Social media gives us the feeling that we are connected but, when it’s not backed by actions, it’s really just smoke and mirrors. Â Dating apps are another great example, they can give us the same feeling. Â Maybe you are going out on lots of dates, but are you really making connections?
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Social Media gives us an excuse to not reach out. You saw it on Instagram and double tapped it for the heart. So while we may be staying up to date on important moments, weâre not deepening our relationships.
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Relationships ebb and flow. I get it. But if you’re like me, you have friends, acquaintances, colleagues, sports team mates, relatives, etc. in your life that you have at one point been close with but eventually drifted apart.
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Why is that?
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You moved to different cities, you graduated, you changed teams, you got in a fight… whatever the reason, they moved on and you moved on. Were those people important to you? Valuable to your network? Did they make you laugh? Give you confidence? Push you to be better? How did you let these relationships slip away you ask yourself?
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They may be gone for now, but not gone for good. In modern terms, these relationships are just a few clicks away from being rekindled.
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Yes, the answer is that simple.
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What are we waiting for?
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Making a phone call isn’t hard. Clearly, it’s something else that is stopping us from reaching out to that old friend. This is where the perception pivot comes into play (to read more about perception pivots click here).
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Our mind immediately goes to the worst case scenario. Essentially, the same reason you don’t walk up to the pretty girl at the bar is a different version of the same reason you don’t just call a friend you haven’t spoken to in 5 years out of the blue. Rejection.
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But, the truth is, people are ALWAYS happy to hear from you. Always. What’s more flattering than getting a call from someone you haven’t heard from in a while? Who doesn’t love to be called and asked for career advice? Or catch up about old college memories?
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Imagine the scenario where your old co worker from your last firm calls you and you chat for 30 minutes and catch up. You go home, tell your significant other about it. Do you say, “ugh, you’ll never believe it, some guy that I worked with years ago called and talked my ear off, couldn’t get him off the phone. What a waste of time.”
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OR do you think it goes more like, “Honey, I had a guy that I used to work with reach out. Really great to catch up with him. Turns out he’s working at a competitor of one of my clients. So awesome to hear from him – might even get some business out of it!”
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Likely the conversation would be somewhere in between those two scenarios, but you get the point.
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Beyond the benefits of networking and generally being âin the knowâ, why should you put yourself intentionally in seemingly tough and awkward positions?
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Robert Waldinger, a professor of psychiatry at Harvard Medical School recently concluded one of the worldâs longest studies of adult life. A key conclusion gleans why relationships are so critical.
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Those who kept warm relationships lived longer and happier, and the loners often died earlier. Loneliness kills and on long time horizons, itâs as powerful as smoking or alcoholism.â**
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We can’t all live in the same place, stay at the same job, have the same interests forever but, if you care about a relationship, don’t let too much time go between interactions. Friendships don’t take a long time to start fizzling out.
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I know I am over simplifying it. If it was that easy, everyone would do it, right? Take some baby steps.
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Make note of birthdays on your list of people you want to catch up with and, on that day, shoot them a text or give them a call. Talk about an easy in.
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Keep up with someone’s LinkedIn updates. A congratulatory call when an old friend gets a promotion is a normal and positive reason to call someone… but NO ONE EVER DOES IT. You will stand out amongst your peers, if you do these things.
A Simple Framework
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1. Make a list
People you haven’t spoken to in a while that you that you care about
2. Tackle the list one by one
Go down the list and just start calling people (texting counts, but use it as a tool to set something up)
ie: Text someone to organize a time to talk or meet for a coffee
So you might ask yourself, why don’t people do it? I think there are a couple of reasons.
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Number one, inertia/laziness/selfishness.
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Get over it. Just reach out. Once you do it the first time, and you realize how fulfilling it is, you will want to do it over and over again. Not only will it feel good, but it helps ensure the network you worked so hard at creating remain healthy and strong.
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You can feed your selfish side by remembering that staying in touch with smart and successful people will likely help you down the road. Not only that, people will start to look to you as the person that knows what everyone is up to.
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It starts out hard with that first awkward conversation but quickly becomes easier and more natural.
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It’s an upward spiral effect, and itâs all driven by you taking action.
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Why else do people not do it?
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Fear.
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What would I say? We haven’t spoke in so long… again, this is a bogus excuse. Â You will likely be the only person calling them out of the blue to catch up and they will be excited that you called.
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The usual, âHow’s work?â, âHow are things?â, âGirlfriend?â, âBoyfriend?â, âWhere are you living?â Those types of questions are OK. Remember, you haven’t spoken in a while. Even if the conversation never gets past those surface level topics, it was still worth having. If this is someone you care to maintain a relationship with, it IS worth doing. The next call will be easier.
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When I ask people why they don’t keep in touch with their high school friends, their college friends, their old co workers, the answer is almost always, “I don’t know… but I really should“. Â
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Let’s change that.
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I challenge you to go out and make one phone call a week to a friend, old colleague, aunt or uncle that you haven’t kept up with and see how he or she is doing. Make a physical list of people, and keep it wherever you may be most inclined to make these calls.
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For me, when I lived in NYC, I wouldn’t take the bus or train to and from work. I walked the thirty minutes, and every day on my way home, I called SOMEBODY. Â My mom, old college friends, friends from my hometown etc. Sure, I find value in listening to podcasts and music when walking or driving around, but I have never gotten more out of listening to music than I have strengthening a relationship.
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This is the 21st century. We no longer need to write a letter and wait weeks for a response. There is really no good excuse for good relationships to shrivel up and disappear.
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Connections matter. A lot. Let’s treat them with the amount of importance they deserve. Make the call.
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*Special thanks to David Tillem for this guest post!
Everyone has trouble delaying gratification, but some people have it worse than others.
Letâs explore why itâs so hard, and how it connects to your success.
Part 1: Itâs not (totally) your fault
Our brains are wired to favor immediate reward.
Two Million years ago, our only priority was to stay alive. Cavemen didnât have time to sit around and contemplate life (sorry Aristotle!), instead they needed to hunt and gather. Our human brains encouraged this behavior through a short-term feedback loop, which worked really well. This simple system was at the root of our survival; donât be eaten, successfully procreate, and improve living conditions.
While humans have evolved and developed the ability to rationalize, our brains continue to use the same decision-making system.
Itâs as if we have the newest iPhone, but itâs running on the original Mac software.
Using fMRI machines, scientists can observe what is going on in our brains while we make decisions. Ultimately, itâs a fight between two parts of your brain; emotional vs. rational.
When we choose immediate gratification, our emotional parts are in control; when we choose future rewards, our rational parts are running the show. (Brain Battles, 2004).
This explains why, when weâre under stress, we tend to break goals and indulge in bad habits. Stress basically numbs our prefrontal cortex and gives complete control to the amygdala.
Itâs like emotional morphs into Muhammed Ali, while rational downgrades into a nostalgic childhood geek.
Place your bets.
But thereâs a greater issue.
Todayâs world is significantly different than that of our ancestors; our goals are at odds with our brains.
Want to get in better shape?
Work-out daily, become lean months later
Want to start a business?
Operate on annual losses, see profit years later
Want to be more financially independent?
Save and invest for decades, have enough to retire comfortably later in life
Weâre in a constant fight against immediate reward, and our ability to overcome it is extremely predictive of future success.
This is especially true in the 21st century, but, before we apply it to our lives today, letâs take a quick look back on history.
Part 2: Human time dilation and relativity
Time dilation is a scientific concept discovered in 1897 by Joseph Larmor (source). Time dilation occurs when two people are looking at the same event but observe a different amount of elapsed time.
When this gets discussed in the scientific community, itâs focused around velocity and gravitational fields. For example, when we are on Earth we look out into the universe and view things in âEarth-time,â which is based on our gravitational field. If we were on Mars, we would see the exact same events, but happening slightly slower. This is because the gravitational field on Mars is different, and, therefore, time moves at a different speed.
Have you seen the movie Interstellar?
The scene below is touted by some astrophysicists as one of the best visual representations of time dilation ever. In this scene, part of the team spends less than 15 minutes on a high-gravitational planet. When they return back to their ship, 23 years has passed for the crew members who remained on board.
I posit this is happening everyday, all around us.
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Instead of velocity and gravity, itâs based on our experiences and use of technology.
Hereâs what I mean:
The technology we use has subtly established new baselines for our expectations and our patience.
This change began a few centuries ago, but it is progressing. Quickly.
Months: In the 1600s, when settlers first arrived in America, they set up a monthly horseback post between New York and Boston [1]. Back in that time, that was the speed of communication and exploration; it was their reality. Think about it, not only did they wait months to receive messages by post, but it took them months to sail across the ocean and arrive in America. Their reference point for time was in months, basically the currency or units of exchange.
Days:Â Once the United States Postal Service was established in 1775, improvements in infrastructure allowed mail to be delivered on a more regular basis. By the 1800s, Americans were becoming used to receiving new mail each day, a vast improvement from the century before. With this improvement, the new baseline shifted from monthly to daily.
Hours: In the late 1800s, Alexander Graham Bell figured out a way to transmit sounds over wires, creating the landline telephone [2]. While the invention occurred in the 1800s, consumer adoption didnât start taking hold until the 1960s [3]. With a telephone in every home and office, it was expected that youâd be able to answer or return a call within a few hours of receiving one. What was also widely popular around this time? The color television and the evening news. These technologies helped create a new world, one understood by the hour.
Minutes: Ray Tomlinson is credited with inventing email in 1972 [4], but it wasnât until the 1990âs when email became more adopted by everyday people. Likewise, microwaves become common in every home, which meant one great leap; foods that were meant to take an hour to cook, would now be ready in minutes. Children born in the 90âs are also referred to as the âMicrowave generationâ for this reason. Kids growing up at this time naturally saw the world through minutes, and would now be able to have another basic need even faster than their parents.
Seconds:Â Steve Jobs. Just by saying his name, you likely pictured two things; iPhones and black turtlenecks. We can credit him with the proliferation of smartphones, and along with those, improvements in mobile apps, sites and tools. A few seconds, can feel like an eternity. And if you need proof of this point, 53% of mobile users abandon sites that take longer than 3 seconds to load [5]. Today, for better or worse, the baseline is seconds.
The baseline leaps between generations continues to accelerate.
The boxes are getting smaller and the clocks are halvening. Improvements are taking less time to develop and, when they go into production, their addition is exponential.
Consider how often you may check social media after youâve added a post, or how often you refresh your inbox after an important email has been sent. Do you think of it in months, days, hours, minutes, or seconds? The sheer speed we now have has changed our definition of delayed gratification; time has recalibrated.
Which takes us back to our kid and grandparent graphic; same reality, different baselines.
Your baseline is highly predicated on the way you choose to use the technology available. If you allow it to control your expectations and understanding of speed, you will continue to have difficulty delaying gratification.
And, gratification, is where this all comes together.
Part 3: Where everything comes together
Our greatest pursuits are set on long time horizons.
The more ambitious the goal, the longer you must persist without immediate results.
Perhaps this is one reason why we look at wildly successful individuals as if they are cut from a different cloth. Itâs as if they possess some sort of magical power to accomplish remarkable things, meanwhile, we are merely âaverage.â Yet, fundamentally, they are more masterful at delaying gratification. A small part may be in their genes, but Iâd posit itâs mostly hard-work, focus and comfort when waiting to reap reward.
The Reward Delayed Timeline
They are achieving goals that have longer reward delays. As their ambition and impact increase so do the stakes and risk. Are they immune to reality and natural stress? Certainly not. They stay grounded and honest to the necessary waiting period needed to get the job done. By surrounding themselves with others who are similar, it makes goals feel more possible and recalibrates their natural baseline to a new timeframe.
More delayed gratification = more ambitious goals
“The first order thought of instant gratification is a crowded path, ensuring mediocre results at best. Delayed gratification, which requires second order thinking, is less crowded and more likely to get results.”
A simple example would be writing this article. Believe it or not, this article took two months to complete. That meant opening a Google Doc hundreds of times, only to see incomplete or partial work. The writing too underdeveloped so I couldnât share my work for feedback. I was forced to wait.
Hereâs the thing, if I had to plot it on the Reward Delayed Timeline, itâs not that high; it falls somewhere around âSkilled.â Itâs measly compared to a founder starting a business (Industry Leader) or a personal favorite of mine, Elon Musk (World Changer). Getting humanity to Mars is at least a 30 year project, which has minimal feedback loops along the way. Thatâs some serious second order thinking.
How to elevate your second order thinking
Step 1: Determine your most ambitious goal
Print a copy of Reward Delayed Timeline (download here)
Plot your top 2 or 3 aspirations on the chart
Step 2: Ask the questions
Are your reward expectations sitting on the right time horizon?
If not, either adjust your goal or reset time expectations
Work backwards, set micro-goals that prove youâre progressing
Step 3: Commit to to the delay
Whenever you feel down on yourself, pull out your timeline
Remind yourself how ambitious your goal is, and at what delay level you committed to.
You can do it.
Repeat, repeat, repeat.
Anyone can change the world, but it takes patience
As our baseline shifts, it becomes harder to stay on task, delay results, and produce deep meaningful impact.
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I believe that if you can put your phone down and detach more often, youâll be better at setting time-delayed goals and sticking to them. By focusing your efforts on a reward-delayed timeline strategy, you can correctly plot the ambition, skills and patience needed to get the job done.
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Because once you become a master of yourself, you can master anything.
If youâre reading this article, I need to thank you.
Thank you for becoming a fan, sharing with friends, and for all of the encouragement along the way.
Building a subscriber base is a lot like weight lifting.
Let me explain…
The first time you hit the gym, your muscles arenât very strong. Something as light as 25 pounds, really feels like 100.
Well, thatâs the same thing that happens when you start anything new. Iâll use this blog as an example, but odds are, youâre also working on something you’re excited about too. Take this framework and fit it into whatever constitutes as your blog.
If you plot difficulty over your most ambitious goals, they get more achievable over time. It takes a while to establish a base, but once you do, the next goalpost becomes easier. Much like when you hit the gym, the first set of weights feel way heavier, but if you stick with it, your muscles build and those once heavier weights become your warm-up exercise.Â
It has this funny compounding effect; where your progress keeps doubling, yet, it continues to get easier. Your ability to impact keeps growing too. Suddenly lifting 100 pounds feels less than your original 50 pound rep on day one.
This blog is still in its earliest infancy. We’re deciding which exercises make sense and when to fit the gym into the busyness of life. We have to zoom in really close to see the location.
This past month, youâve seen me lace up my sneakers and hit the gym. After a month of checking out the equipment, Iâve decided to put a new workout plan in place. That’s right, channeling my inner Kanye =)
Monday Tidbits are staying, but Iâm switching around the article content.
I want to go deeper on these topics and add more visuals (similar to this week). Who knows, maybe there will be video content too or a podcast for the train ride or drive. But basically, the articles won’t come everyThursday.
If youâve enjoyed anything so far, or thought this week was cool, I think youâll love whatâs coming next.
The destination may change but who cares?
Changing the workout routine keeps life interesting.
Ninety-Percent of life is about showing up⌠on time
Compounding interest is perhaps one of the most important and powerful discoveries of our time.
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” Â
– Albert Einstein
Einstein wasn’t just referencing money when he said those wise words; in nearly every domain of life, compounding can either make or break you. If for example, you only get 1% better everyday for a year, versus 1% worse, you’ll be over 1000% better by end of year.
When you break it down, success is actually played at the margins; itâs about getting slightly better each day over a long period time, instead of dramatically better in one fell swoop. [James Clear on Marginal Gains]
The classic example is saving for retirement. When you start early and stay consistent, accumulating a large nest egg becomes much easier. With an Employer Match, a 20 year old could invest as little as $5 each day to retire a millionaire by 67 (The Impact of a Starbucks Latte).
If you imagine compounding as a Dr. Seuss-like machine, there are two ingredients going in to create varying levels of âSuccessâ that come out the other side: TIME (when you start) and INVESTMENT (deliberate practice).
Hereâs the best part about it, you control both inputs. Given the first example (1% better), you can see that, if time is on your side, you actually donât need to invest nearly as much. However, the longer you wait, the more youâll need to catch up. If you contribute $1,000 each year into an investment account, which compounds at 7% each year, below is the final balance youâd have by age 67, based off what age you START:
If you start at age 5, youâll be a millionaire. Say you wait until half way through this chart (31 years old) to begin, you’d end up with a mere 17% of the total opportunity.
Perhaps the more powerful input you control is how early you start, not how much you invest.
Intellectual Compounding told by greats
âAn investment in knowledge pays the best interest.â
-Benjamin Franklin
Most people know about financial compounding, but few recognize intellectual compounding. That is, the same exponential curve can apply to your growth as a thinker, an entrepreneur, or any related skill. If we were to plot how much you push yourself to learn, we see the same 1% better trend lines. By learning everyday, you become better at learning new things and adapting to your environment; itâs not a linear relationship, but instead an exponential lift.
âRead 500 pages every day. Thatâs how knowledge works. It builds up like compound interest.â
-Warren Buffett
The prolific speaker, Tony Robbins, has also acknowledged this phenomenon. When Tony started his career, he wasnât nearly the presenter he is today. In fact, Tony says one of his co-workers was much better than him, which made Tony wonder why. What was difference between them? Did his co-worker have a gift that Tony was incapable of? Not even close. Tony realized he was only giving 1 presentation a week, whereas his co-worker was giving about 3 a week. So to be better, Tony quit his job and started giving 3 presentations a day. In about 2 months time, Tony gave the equivalent number of presentations that the other guy would give for the rest of the year.
Tony massively elevated his deliberate practice, but he also started early. While his fame emerged after his first book release at age 28, his first job as a motivational speaker was at age 17 – a full 11 years earlier.*
âThe most important thing to do is start investing now so you can unlock the power of compounding.â
-Tony Robbins
We typically over-praise the individual versus their positive habits, environment, or commitment to growth. Whether you’re starting a business, a new job, or working towards an ambitious goal, compounding is the secret sauce that gets less attention. When we think of becoming great in any domain, we usually think about working harder and longer than the proverbial other guy. Instead, we should be thinking about starting one day earlier than âthe other guyâ.
Timing needs a higher priority
Working hard is the easier part; itâs not difficult to wake up an extra hour earlier or stay at the office after hours if itâs something that you find deep purpose and potential in. Figuring out when to start though, thatâs hard.
âBookstores have an entire âhow toâ section but not a âwhen toâ section… [Yet] timing… can be everything.â Â Â Â Â
Perhaps we can simplify this though; start now. There are probably millions of great ideas waiting to be unlocked, but weâre too afraid or too slow to start. When you understand compounding, you give timing the attention that it deserves. Successful people understand this and itâs why, when they get asked about their biggest regret, many of them answer that they wish they had started sooner.
One of my favorite high school teachers used to say, âNinety-Percent of life is showing up on time.â He would go on long tangents about the value of time, whenever someone arrived late to class. Ironically, weâd end up spending anywhere from 5 to 15 minutes of class time listening to him dissect the topic. To him, it was imperative to show up, but the more important point was to be on time.
Reflecting more than a decade later, I believe he understood something much deeper about timing. If you want to be the next Mozart, you canât wait 30 years to begin learning piano, you need to show up when the opportunity first strikes. When youâre late to start, you miss much more than just the opening credits of a movie; you miss the character development, the plot, in fact, you never reach the conclusion. Using compounding interest, a late entry could reduce your returns by 100x; thatâs the chance to learn, grow, or become your best self.
To take advantage of our total potential, we need to be on time.
We tend to confuse the two and thatâs a big mistake.
If youâre like myself, when you set your most ambitious personal goals, they tend to sound something like this:
Appear on the Forbes, ‘[insert age] Under [insert age] List’
Get promoted at work
Increase my net worth to $XX
What do they all have in common? These are all backward looking indicators. In other words, they are signals that youâre doing well, but in the past. While achieving these accolades does correlate with success, they arenât predictive of future success. Rather, they are proof that success has already happened, in the past.
Your goals should really sound more like this:
Learn a new (seemingly unrelated) discipline
Embrace a new positive habit backed by science
Reach out to non-local friends more regularly
The difference? These are all forward looking indicators; they donât show off as accomplishments in the typical way we view âsuccess.â Yet, if you do any of these things, itâs easier to predict your performance in the future. Following through on these goals wonât get you a celebrated medal, but they are the positive tactics that actually get you there.
Learning from successful peopleÂ
What do Warren Buffett, Mark Cuban, and Bill Gates have in common? They are vivacious learners. They dedicate many hours each day to reading about new subjects, because it challenges their mindset and allows them to connect independent ideas. Thatâs a forward indicator – agile mental models produce novel ideas but will never receive an accolade for habit itself.
What do they also have in common? They are all Billionaires. Their net worth continues to climb and is a testament to their consistent ability to keep growing as individuals, entrepreneurs, and thought-leaders. Thatâs a backwards indicator – it reflects back on their total economic output to date, in the past.
Thatâs the formula.
The most powerful forward indicator is happiness
Compared to their neutral or stressed counterparts:
Doctors are 19% more accurate at diagnosing their patients
Sales people are 37% better at closing
Operationally, we can be up to 31% more productive
Thatâs just the beginning; there are studies that show we are more creative, better at problem solving, and more resilient and innovative when we are happy versus neutral or stressed. *
When we increase wellbeing in the present, all of our our future outputs rise. We are a product of our environments. So, elevating these inputs also helps those around you; your family, friends, and co-workers. Start with happiness and finish with more success.
We should be challenging our employees and organizations to set forward looking predictors
How are you going to push yourself to self-learn this year?
Whatâs the one positive habit you will commit to practicing this quarter?
When will you find time to connect with your network this week?
Ignore the accolades, because they come later.
Remember, when our team commits and crushes the small stuff, we need to celebrate too. Our brains are wired for short-term feedback loops, which makes forward predictors hard to set and follow through on. Itâs easy to choose a well-known award to gauge success, but itâs the abstract and consistent daily habits that really produce it.
By adjusting our measuring stick of success, we can elevate everyone around us. Eventually producing more backward predictors that we know and love.
Every morning around the country coffee-fanatics line up in droves, waiting for that favorite cup of Joe. Not only can the wait be long, but it can be more than $5 a cup! Which should beg the question⌠how much does your morning cup really cost?
On one side, we have people who get the occasional coffee every month. On the other side, we have the group that canât go a day without their orange mocha frappuccino (you know who you are)… letâs look at the daily coffee camp.
To start, if youâre buying a $5 cup each day of the week, you are spending $1,825 each year. If that doesnât sound expensive enough, consider the income you need to earn to sustain this morning ritual. Using a 15% marginal tax rate, you must earn $2,098 each year. To someone who makes $50,000 a year ($24 / hour) thatâs 87 hours or two weeks of working each year!
Kicking the habit or making it yourself would put $1,825/year in your pocket – sounds simple, minus the potential coffee withdrawals. But what if we took this to the next level?
Investing the savings into retirement accounts
If you dumped that $1,825 into retirement on January 1st of each year, hereâs what your estimated balance would look like over time:
Assumptions: 7% annual rate of return, lump sum invested on Jan 1 of each year, return calculated without fees
Thatâs the power of compounding.
But since weâre talking about retirement, itâs only fair we discuss the employer match. Here, an employer may match the dollars you contribute towards your 401k. There are limitations to the amount they might match (check with your HR department), but letâs assume theyâll match the $1,825 dollar-for-dollar. Â
Now your investment becomes $3,650 each January 1st, and the results are staggering.
Assumptions: 7% annual rate of return, lump sum invested on Jan 1 of each year, return calculated without fees. Employer matches $1,825, investment becomes $3,650 each year
If a 22 year old beginning their career made this one change in their daily routine, they would have roughly $744K by age 62, and theyâd break $1M by their 67th birthday.
Saving the equivalent of a daily Starbucks latte could allow working Americans to retire on schedule.Â
Even if you don’t have or arenât taking advantage of an employer-sponsored 401K or match, looking to cut a small habit is worth considering. Redirecting even a handful of dollars a day can go a long way. Â Itâs worth noting, the retirement problem in America is very complex. There are, of course, other factors contributing to the broader issue; but this is for the individual to consider.
When small, everyday habits compound, they create extraordinary gains.Â
Habits are at the center of everything we do. Everyone has experienced this situation; youâd like to workout more often, but things come up and you never end up at the gym. Perhaps you find there isn’t enough time to get to the things you care about and love. Why? You may feel as though your decisions and routines are repetitive; like you’re driving your car on autopilot. We fail to recognize that we control the habits that we form and, thus, the direction of the car.
âWe first make our habits, then our habits make usâ -John Dryden
While not everything is within your control, existing habits can stop you from reaching your goals. Be an informed driver and decide the route you want to drive based on the conditions; not on the routine.
âItâs the daily practice of all the monotonous, little, boring things like brushing your teeth that matter the most. Thereâs no single event. Thereâs no one thing I can tell you you have to do. Itâs an accumulation of lots and lots of little things, which any one by themselves [are] useless, yet together add up.â Â -Simon Sinek
When it comes to money, turning a small expense into a small savings could make you a millionaire. The same exponential return is seen across other areas of your life.
Want to become more insightful?
Read about a new subject for 15 minutes each day
Want to raise your EQ?
Meditate for 5 minutes each day
Want to become a more empathetic leader?
Put down your smartphone before stepping into meetings; give your reports 20 minutes of undivided attention each day
Similar to retirement investing, small habit changes will be subtle at first, but they add up and compound over time. Itâs with patience and commitment to betterment, that we can achieve slow, yet incredible gains.
What’s your Starbucks latte?
Whichever area it falls into, it may just make you a millionaire.
You should always focus on valuable realities; a familiar statement I tell Googlers attending my happiness course.
There are 11 billion pieces of information communicated to us every single second.
Crazy, right? If you look around, there are 11 billion things your brain can focus on. What do you think your brain can actually process (per second)?
Here is where the really optimistic people shine. Some will shout out, âone-thousandâ or even âten-thousand,â but the answer is actually 40 bits per second. You donât have to be a math expert to know that 40 is a really, really small slice of 11 billion. Thatâs the equivalent of choosing 58 people on the entire planet!
Whatever you focus on, is the reality that you live in; and everybody focuses on something different. This is pretty nuts, and what weâre finding is people are quiteliterally living in different realities. If you’re a Stranger Things fan, we’re having the same thought; the upside down is being played out in real time! Well, not quite that dramatic, but directionally it’s actually correct.
There’s an important group of people, who we call, âPositive Geniuses.â They focus on the right pieces of information in their environment, leading them to faster solutions, higher levels of creativity, productivity⌠the list goes on. They’re using perception to their advantage.
There are two specific ways you can train your mind to become more like a âPositive Genius,â and I decided to try them out myself for 30 days.
Daily Gratitudes – thereâs a lot that youâre grateful for, so take the time to recognize it
Write down 3 things youâre grateful for each day, it can be really abstract or really simple
IE: Good music, cute puppies, and the opportunity to learn something new everyday
This rewires your brain to look for the positive things in your environment (the better 40 bits)
Reframing Challenges – multiple realities exist and we need to select the most valuable reality
Choose something youâre struggling with and write down three ways you currently view the task; then, contrast it by writing down three alternate yet equally true ways to see that same problem
IE: I have a lot of work to catch up on, but I also have a lot of responsibility and control in my job
This forces you to view situations in multiple ways and, by doing so, you recognize new factors in your environment you typically miss (a different 40 bits)
Would I start seeing the positive details in my environment? Could I be missing the most important 40 bits? Will it have any measurable impact on my performance at work or at home?
The second exercise was most fascinating to me, and it flows into something I dub the âPerception Pivot.â Weâve all experienced it before – you learn a small fact about a situation and suddenly your option or outlook does a 180. IE: You thought the cashier was a terrible person, but suddenly you couldnât have more compassion for them. Hereâs an example that underscores this incredibly well, and it comes from my friend, Sean. At the time, he was a manager of an Apple Store.
One Thursday, it was busier than normal and the wait was long. One woman in the iPhone repair queue was getting extremely agitated at the staff. She began acting out and screaming at employees. The other customers in line were looking at her like she was a lunatic, they tried their best to just ignore her. Eventually, she demanded a manager and Sean did his best to truly understand the situation by asking her a series of questions. After a few minutes, he found out something critical; she was a chemotherapy patient and used some of the applications on her iPhone to schedule her medical treatments. The longer she waited for her phone to be fixed, the more treatment appointments she was missing.
I think anyone in that line, if they had known this fact, would have acted differently. Even you, feel completely different about her behavior at this point, right?
Boom. Perception pivot.
Back to my research, the short answer is yes; I began to have a more positive outlook everyday, I felt more satisfied at work and even found stronger meaning in my social circles with friends and family. It felt as though the exercises were working, I was certainly more grateful and saw challenges with new vantage points. But my conclusion was only anecdotal; I needed something else to show the exercise was working. And thatâs when something incredible happened.
I was meeting a friend after work who lived in downtown Ann Arbor. The buildingâs tenant base was predominantly graduate students and newly working 20-somethings. As I came through the lobby, I saw an older woman stacking large moving boxes; there must have been at least 4 of them, each full with belongings. She was having trouble moving them alone, and each lobby-goer passed by as if she wasnât there.
It was so strange. I mean, if you ran an experiment showing various situations and asked, “what doesn’t fit?” I think 10/10 test subjects would have chosen this woman. Nothing lined up, she was middle-aged, not recently graduated; moving out, not moving in; visibly upset and unhappy.
In real life, you’re not forced to pick out things that donât fit. In fact, we’re usually running on autopilot, deep inside our heads, there’s a lot we miss. Everyone assumes the script is always the same, but many times itâs not. Ah-ha! My perception exercise was working.
Instead of passing her, my eyes met hers and I just began moving boxes. We didnât say anything, I just started helping. Suddenly her individual operation evolved into a circuit formation. 10 additional boxes were transported from the lobby, to the parking lot, to the trunk of an SUV. At the car, there were two adults waiting, both in a saddened mood. After we packed the last box away, I answered their thank-yous and walked back towards the building.
I had almost reached the entrance when I heard, âWait a minute!â …she had followed me back inside. As I turned around, I noticed eyes held back tears. âThat was really kind of you.â she said. âThe two parents at the car just found out that their daughter had passed away. It was sudden. I knew her well because I am a professor at the University and she was one of my students, a great person. What you did means so much, itâs hard for me to describe. Getting help from from people in the community has been so important.â
Boom, perception pivot.
You should always push yourself to see how situations may be different.
Angry at the driver who cut you off?
Maybe heâs driving his wife to the hospital, sheâs in labor with their first-born.
An employee comes to work late each day of the week
Maybe sheâs taking care of an ailing parent, hasnât been home earlier than 11pm each night
See a stranger moving out of your apartment building?
Maybe sheâs helping a friend who needs it more than you can imagine
We tend to give ourselves the benefit of the doubt, but never offer others that same chance. It leads us to miss whatâs going on right in front of us because weâre stuck in our own heads. We need to constantly challenge our perceptions, everyday, in every way.
I challenge you to pick up a positive habit this week and view your reality differently. When we become Positive Geniuses, we don’t just elevate ourselves, but instead, we lift everyone up.
Perspective pivots matter because they help us reach our greatest potential.
Every company is different, but one thing is certain; great employees require major investment. Recruiters will tell you that’s a no brainer, and it should be. However, time and time again, companies overlook the bottom-line cost when top talent leaves.
Let’s start with an example. You have a manager who’s been in the organization for 4 years, a top performer. Based off a variety of reasons, they put in their two weeks notice. What’s that really cost your business?
You can break this down into two categories; one hand are the benefits to the company if they stayed, the other hand are the costs of leaving. I’ll just breeze over the benefits, because the costs are the most overlooked and ignored. Here we go:
Benefits of Staying: Remember this is a top performer. Most often, they have stronger skills than someone who could replace them. If they stay, their skills keep growing and they challenge the rest of the organization to keep up. These are the ones who teach their skills to other co-workers, the reason why the best perk is the people.
When they stay their output keeps climbing. A number hard to measure, but we would expect them to keep producing great stuff that matters. And that’s disregarding the intangible and unforeseen stuff, because usually our best people surprise us with things we couldn’t imagine.
Costs of Leaving:
Costs vary by industry, but when we’re talking about top talent,  initial costs can be upwards of 200% of their salary. *
How could that be? Consider our investment in them for a moment.
Recruitment: We pay an entire department just to find these people. Every resume or interview, someone’s being paid to search. If we’re really finding top talent, for every 10 interviews we pay for, maybe we find 1 candidate.
Training: Before the employee can fully contribute in their role, they need to be trained. Training varies depending on industry of course, but initially we expect the new hire to be asking more questions than producing. If we have formal training, someone is on the pay-role to conduct that too (another cost).
Output: We sacrifice a lot when they start. Productivity and performance will most likely be low compared to our tenure folk. We know it takes time and we’re playing the waiting game before we see their potential. If they are only half as productive, we’re paying them 2x what they are producing (at first).
Here’s the Irony: We understand it takes time for people to develop, but when are they most likely to leave? It’s once they are finally developed and successful in their role. We’ve waited, invested in their growth, then they walk out the door. If the average attrition in your company is 20% YOY, that could mean upwards of 40% of your costs each year are just salvaging who you’ve lost. Woah.
There are plenty of ways to keep employees engaged and invested in you. Here are my top two:
#1 Challenge Them: Most top talent have one thing in common, they never stop learning or growing. Give them freedom, allow them to participate in discussions about the business. If they have an idea for something that can help the business, let them work on it. First make sure they are excelling at their core role though. If they are a top performer, they’ve earned the credibility to work on other ways to impact your bottom line.
#2 Recognize Them: Studies are beginning to glean that recognition is more motivating than money or rewards. Another ironic part to this, recognition takes almost no time. Working into weekly conversations that you are thankful for their effort goes a long way. As an anecdotal story, I was fortunate enough to be recognized by one of our directors a few months ago. That was almost more fulfilling than completing the project. It energized me to keep furthering some of those ideas. If you’re in a position of power, your greatest strength is recognition.
Sum it up; losing good people costs good money. Make sure your talent is challenged and recognized. Take time to ensure they understand your company’s mission and purpose. Otherwise it will end up costing you more than you bargained.
