Unless you’ve been living under a rock, you know that compound interest is the foundation of investing. But what does compounding have to do with the other 8 hours? A great deal.
How you invest your other 8 hours determines your happiness and financial success. If you squander this critical time, it’s like putting $50 under your mattress. It won’t provide you with any return. For that $50 to grow, it must be invested. For your time to grow, it must also be invested. We’ve been told that time is money. But is it possible that time can make more time?
You can use the other 8 hours to increase your skills to make more money or become more efficient. If you make more money, you can invest the money and benefit from compounding interest. But if you use your time to become more efficient, you can also invest it and benefit from compounding time.
Let’s see how this works. If you learn a tip that cuts the time you spend doing laundry by 30 minutes each week, you could reinvest some of that time in learning more skills that will help you become more efficient. With the time you save from learning new skills that make you more efficient, you can reinvest some of that time, and so on and so on.
You should be investing your time in activities that pay the highest returns — whether the returns are financial, physical, spiritual, etc. Those returns you earn are then able to produce even more results.
Keep in mind that it’s not just about money. Compounding works across all areas of life. It’s the idea of investing wisely to produce a benefit — and of that benefit producing even more benefits.
Here’s an exercise example. You want to lose weight, but you’re not sure you know the best way. You could spend 40 minutes a day on a treadmill, but as soon as you get off the treadmill you stop burning calories. That is, one minute on the treadmill produces one minute of benefit, but that’s where the fat burning benefits stop. Or, you could replace your daily treadmill routine twice a week with lifting weights. What does this do for you? You increase lean muscle mass by lifting weights, which then burns more calories, even when you’re watching TV, sleeping, etc. If you build lean muscles, the time you spend in the gym continues to pay dividends even after you leave.
In order to get the most bang from your investment of time, you want to focus on not just those activities that produce a current benefit (e.g., treadmill) but on those activities that will (or at least have the potential to) produce exponential returns in the future.
(Formula image by orangeacid, CC 2.0)
If you’re interested in using your other 8 hours to get your finances in shape, you can download my free eBook/audiobook “Plan Z: How to Survive the 2009 Financial Crisis (and even live a little better).”
