246: The Compound Interest Effect

Hello. It is 7:00 am in New York, 1:00 pm in Johannesburg, and 6:00 pm in Bangkok. Welcome to the Expat Happy Hour. This is Sundae Schneider-Bean from www.sundaebean.com. I am a solution-orientated coach and intercultural strategist for individuals and organizations. I am on a mission to help you adapt and succeed when living abroad and get you through any life transition.

I’m going to talk about something. I never ever thought I would talk about it in an episode. Hang in there because it is directly connected to our month-long focus on purpose, but you won’t expect it. 

 

Let’s talk about simple versus compound interest now. I am absolutely no finance expert but I think I have a handle on the difference between these two concepts. Now, I want you to think about what would you rather do. Would you want to make five percent off of 1,000 dollars or euros or whatever currency you’re thinking of at the end of the year and you get, what, 50 bucks? And then the next year you make five percent off of a thousand dollars, that’s off your principal. Another 50 bucks. 

 

Now, that is better than nothing, right? You’re happy that you make 50 bucks each year. That’s a concept of simple interest. But what if you could make five percent off of that same 1,000 dollars and get 50, but then in the next year you make five percent off of the 1000 and the 50. So you’re now making five percent off of 1,050 dollars. That’s your balance.

 

So, guess what? The next year, you don’t make another 50. You make 52.50, you make more money than you did the year before based on the same percentage. But what you made the first year is integrated into your balance, and now your money is making you money.

 

And the best part is that it accelerates over time.

 

And the only difference is that the simple interest, the first is based on the principle and the second, the compound interest is based on the idea that your interest will be added into the principal, right? And how rapidly the interest is compounded actually determines how rapidly your balance grows, whether it’s annually, monthly, or even daily, and then it gets exciting because the higher the frequency, the higher, the return.

 

That makes so much sense. So if you were to choose between simple or compound interest, what one would you choose? 

 

I would choose compound interest if I was earning it. I would not choose it if I was paying it. If I was paying it I would choose simple, right? 

 

But the thing is, we get this concept when it comes to money and for us when we’re looking at, what we want to get back from our investments, it’s really clear which one. Why would we choose simple over compound? We’re always going to choose compound when it’s what we’re earning, what we’re getting back from our investment. 

 

So why don’t we apply this to our own lives? With our energy? With how we show up in the world? Why do we keep choosing simple versus compound? 

 

I’ll tell you more about that in a second. But this is an important question to pause and ask ourselves. And here’s the thing. It’s the same thing with money. There are things that we do with money, beliefs that we inherit, and habits that we have, and then when we talk to a financial expert, they look at what we’re doing and they’re like, “Whoa, you’re missing a huge opportunity here. Why didn’t you do that?” And the fact of the matter is that you’re just busy with your life and all these other things you’re balancing. You didn’t have the know-how or you just didn’t have the time and energy to change tracks or go down that track. 

 

But that works with other areas of our life. With money, we know there’s a real cost like a physical dollar or euro amount, a monetary cost. But that is the same thing that happens with our energy. It has a real cost. 

 

Or on our progress, our momentum, real costs. Relationships, real cost. Health, all of it. With money, we see the importance right away and we are motivated to make change but not always with the other aspects of the things that are also valuable in our life.

 

So come on, we’re working hard out there, right? I just posted something on social media from a business coach friend of mine, Nona Jordan. And she has this expression, “Choose Your Hard.” If we’re going to go out in the world and put out effort, we’re going to do something hard. We might as well choose the one that brings growth, that brings us what we want, right? 

 

So if we’re going to use our energy, if we’re going to invest, if we’re going to do anything that’s related to our health or relationships, then why don’t we make the choice that gives us a benefit over time?

 

Okay, gonna put effort into the world. Why don’t we just be a little bit more strategic about amplifying what we get back for our health, our family, professional direction, our communities? And I kind of want to set it and forget it like I would a financial plan. Right? What if we took that same lens, that same logic, and just looked at her other life choices. 

 

So today, I want to invite you to take this simple versus compound interest lens and look at it with the other things that have value. And the answer is why we don’t do this already is because we’re busy. We got complex lives, right? And because we’re on default and we’re doing the best we can. But now is just a moment to pause and think about, “All right. How could I do this differently? How can I do this in a way that serves me better than the ones I love so that I can get benefits for years to come.” 

 

Okay. This is all part of the conversation we’ve been having inside Expat Happy Hour. Remember back in episode 240, I talked about the difference between Learning and Growing. In 241, we looked at purpose and whether we’re hungry for more internal impact or external impact. 242, Amel Derragui shared how clear it is that intention is crucial to living on purpose, no matter what transition you’re going through. Episode 243, Dr. Rachel Pope shows us how commitment pays off long-term and creating what might seem like luck to people on the outside. Episode 244, I shared the process of what it really takes to create that compound interest in our lives. And in 245, Carol El Hawary shares with us what it took for her to show up in her life to really create her dreams. And the answer there had a lot to do with belief. 

 

Okay. So if you are hungry to go further with making big changes in your life and you’re looking for hints into how to do that with more purpose and meaning, check out those episodes because those are actual clients who have transformed their lives and they’re sharing what it took every step of the way. 

 

Okay, but now let’s go back to the lens simple versus compound interest. What if we took that same principle? Okay, Finance Gurus, don’t get at me if it doesn’t translate one to one, just roll with me, the basic concept: Simple versus Compound Interest. 

 

The equivalent in our lives would be like this: If I make a simple decision, to improve my life, I would choose salad on a night out instead of french fries, right? That is better than nothing, putting 1000 dollars in the bank for five percent interest is simple. Simple interest. It’s better than just having that thousand dollars underneath my mattress. So hey, I’m really glad that I chose salad on a night out instead of french fries to promote my health.

 

A compound decision would be to fill your home with delicious food that is good for you. One is good for that moment, made a little impact. The other one is a sustainable impact over time. Simple versus compound. 

 

Okay. Let’s look at the next one. Let’s say you’ve got stress at work. Simple would be to journal after a stressful day at work to get grounded again. That’s wonderful, right? That’s an investment.

 

Compound would be: have the hard conversation with a co-worker that’s making your work life miserable. Both are better than nothing. One has an impact over time. That the investment changes, the trajectory of how work is. Journaling after work is great. It does create some release for that day. But having the hard conversation is the sustainable impact over time.

 

All right. I’m wondering if you’re already thinking like, “Whoops. I’m making a lot of simple interest decisions rather than compound interest decisions.” 

What things are coming up in your mind?

 

Maybe one of your simple interest decisions is you take a half-day for yourself because you’re exhausted. Bravo. Well done. That you took a half-day for yourself. But a compound interest decision would be, you would change the thought, “My needs aren’t as important as my family’s,” that will make an impact over time, that will change the trajectory of your life, right? Where you own the thought, “I deserve rest.” One, okay, half days are better than nothing. The second one is going to accelerate the impact in your life over time.

 

I think you’re getting the gist of this. How can we show up in our lives in ways that not just offer something decent now, but actually accelerate the positive impact in your health, your relationships, your profession, or whatever is important to you over time?

 

Let’s say you’re feeling disconnected from your partner. So you want to make some difference there and you decide to go on date night to help stay connected. Wonderful. But a compound approach would be creating a practice where both of you share how you are really doing at dinner instead of just hiding what’s hard.

 

One is a really smart practice. The second one adds depth and creates an impact over time. That’s just an example, depends on what is hard about your life and your relationship. You might need to tailor it to your own situation, but you get the gist. 

 

It’s about going one step further: How can I take something that’s good and do it in a way that accelerates the impact in the direction that feels right for me?

 

Okay. So another example. simple, use your kid’s nap time to make progress on your projects. Compound, build in a predictable support that you can count on to work towards your goals, regardless of nap time. Okay, simple is good. It is better than nothing and there is a benefit. And believe me, I’ve been in places in my life where that was already a gain. Like, “Let’s stop sabotaging myself. Start supporting myself.” So if you’re in that space, going to simple is already a leap and that should be celebrated. Really, no judgment at all. I’ve been there. I’ve made some of those shifts and it’s worth celebrating. 

 

But maybe you’re at a point where that isn’t enough, that’s not making enough of an impact in your life and it’s time to look at your life, and see how you could shift from simple to compound. Where it’s not only good, but it is even better. And the impact has results that accelerate over time. 

 

That is an important conversation for you to have it yourself so that you can be showing up in your life with more purpose and meaning. With better health, higher-quality relationships. Battling feelings of isolation or that sense of feeling out of control when everything feels uncertain. Looking at the choices you’re making, you’re making choices anyway, right? You’re putting energy out there anyway, what is one small thing you can go from simple to compound? 

 

All right. The good news with compound interest is that time is on your side. And the earlier that you start the better.

 

And if you are really serious about making this shift from simple to compound, but you want someone by your side, THE TIME IS NOW. If you’ve been listening to Expat Happy Hour or following along on social media, you know the applications are open for Year of Transformation. They’re open through the end of September 2021, September 23rd is when I want to close the doors on applications and hop on the phone with you because spots are filling and I want us to have a conversation to see what that would look like for you to go from simple to compound. To make the decisions that will actually change the trajectory of your life and accelerate the progress that you’re so hungry to make. 

 

The best thing is that these are all small steps that happen frequently over a year. One to one with me so that you can feel the payoff in that same form of compounded interest. But the payoff is in established healthy boundaries or self-care that is non-negotiable or energy that is redistributed to only what is most valuable to you. Or relationships that are nurtured and they actually lift you up instead of weighing you down. Where you have taken back control of your life and having turned things around for good. 

 

But don’t take my word for it! Here are a few things that my clients have had to say:

 

Leslie says, “I now have the tools to work through decisions in my life, regardless if it’s career, marriage, relationships, or health.”

 

Emma says, “Everyone needs a Sundae in their life. And although it has been 24 months since we worked together, I don’t think a day goes by when one of her sayings or tools is not of use to me. Every. Single. Day.” 

 

Sarah Black shared in our September Summit Series that, “It has given me strength that I didn’t know I had or it’s tapped into things I didn’t know I had and it’s given me a better sense of what I can do in the world and also some good stuff on boundaries, which is a healthy thing if you want to change the world.” 

 

So, that is just a taste of what you can get when you make compound interest decisions and say, “yes” to Year of Transformation. If you’re interested, apply now by going to the show notes. This is Sundae Schneider-Bean from Expat Happy Hour. Thank you for listening. 

The quote from Albert Einstein that I’ll leave you with really sheds light on why it’s so important for you to make the choice on how you’re showing up for your life, whether it’s simple or compound. “Compound interest is the eighth wonder of the world. He who understands it earns it, he who doesn’t pays it.”