Exploring the compound curve, controllable actions, and future you

Welcome to the Intentional Dollar weekly newsletter — great work taking this small step to move your money forward. I’m Logan, a Certified Financial Planner™, and I’m excited you’re here!

What’s inside?

• One tool to experiment with

• Two quotes from others

• Three questions to dig deeper

• Four lines of poetry for the point

_{One tool to experiment with:}

The Compound Curve:

How intimate are you with the mechanics of compound interest?

Not just understanding the math, but what it actually looks like. Compound interest has a visual element. You can plot the growth, interest on interest, creating a beautiful curve over time. The ability to visualize compound interest is an important tool on your wealth building journey.

Pure conceptual thinking about compound interest can cause it to lose its luster. You might be discouraged at the slow growth you’ve experienced, and this could cause you to jump off the pontoon in search for a speedboat.

Sadly, these waters don’t contain speedboats.

Compounding is a slow, gritty grind to reach the place where we can see the tangible rewards of our consistent efforts; let’s call this slow grind the “zone of pain.”

It’s necessary that all compound curves contain this zone of pain — and this is where most people abort. However, if you keep trudging along, you’ll eventually hit the inflection point. I should be clear that there is not an absolute point, but a relative point where historical self-comparison will potently illustrate the magnitude of compounding your wealth.

What you will eventually see is that what you used to save in a month, you now earn in a month from your investments. At a 10% return, this will take you about seven years to see. That’s a lot of patience and discipline to not break the monthly saving streak.

To solidify this, let’s say you live in a bubble world and save $100/month, and earn 10% returns, compounded monthly. By month 85, your monthly return on your investments would eclipse your monthly savings (save $100, earn ~$100) — that’s a huge achievement.

And what happens if you stick with the same strategy of saving $100/month for another 85 months (170 months total)? Your monthly return would be more than 3x your monthly savings (save $100, earn ~$300). If you were to diligently stick with this $100/month strategy for a total of 30 years, your monthly earnings would be over 18x your monthly savings. That is compound interest.

Throughout the zone of pain, your inputs matter way more than your outputs. These inputs, the $100/month savings in our example, comprise a large percentage of your total monthly growth.

Even when you begin to earn what you save, the monthly savings still represent 50% of your total monthly growth ($100/$200). As you continue up the compound curve, the impact of your savings declines ($100/$1,800 after 30 years).

Since the market delivers this level of return on average, your month-to-month reality is going to look different, but not too much. The key point is to get started now.

Important reminders:

• Automate these inputs to reduce the risk of missing a month, and to eliminate any cognitive friction.

• Stay invested, and stay investing (yes, certainly through the really bad times).

• Find micro-wins along the way — plot yourself on the curve and visualize how close you are to your investments eclipsing your savings.

Wealth is an obvious beneficiary of compound interest, but many areas experience a similar compounding curve:

• Knowledge

• Health

• Relationships

• Career decisions

If you want to improve these areas, you have to understand how marginal gains create compounding curves.

James Clear highlights the importance of these incremental gains: “Here’s how the math works out: if you can get 1 percent better each day for one year, you’ll end up thirty-seven times better by the time you’re done. Conversely, if you get 1 percent worse each day for one year, you’ll decline nearly down to zero. What starts as a small win or a minor setback accumulates into something much more.”

What can you do today to jump on a compounding curve?

_{Two quotes on controllable actions:}

Shifting our focus to the things we can control (internal locus of control), builds agency and resiliency against the unknowable and unexpected externals.

_{Three questions on future you:}

1. How can I do more of the things today, that I am deferring for retirement?

2. What actions am I taking that future me will thank me for, what should I change?

3. How might I make future me more tangible, more visible?

Which question stuck with you? Questions like these are spotlights for the mind. Reply to this email and let me know which one shined light on a previously dark cave.

_{Four lines of poetry for the point:}

Contact Me:

Content ideas, questions? Reply to this email or reach out to me at [email protected]