The Compound Interest of Building a Great Career

Anyone who spends much time paying attention to their finances eventually begins to appreciate the raw power of compound interest.

It’s simple, really. Let’s say you put $20 in a bank account that earns 5% interest a year. At the end of that year, you have $21, right? Well, if you leave that money alone, that dollar you earned in interest begins to earn interest itself. So, after the second year, you actually have $22.05 in the account. After the third year, you have $23.10 in the account. And then $24.16, and $25.22, and so on and so on and so on.

If you leave an account alone, in other words, and the account earns interest, the growth of that money will start to accelerate. It will earn more money each year than it did in the previous year without you lifting a finger.

That’s how wealth is built. That’s why so many people who are serious about building wealth talk about patience. They talk about not spending your money and saving it instead, because if you put it in savings and just let it sit there, it will grow on its own.

Compound interest is how people make money without lifting a finger, in other words.

The key thing to remember with compound interest, though, is that it starts with effort. If you put in the effort to save $20 each year, that’s great and the money will certainly grow. However, if you can put in a little more effort and save $25 each year, the money grows even faster.

Let’s say that you put in the effort to put away $20 at the start of each year into that 5% savings account mentioned above. At the end of the first year, you’re at $21, so you kick in another $20. At the end of the second year, you’re at $43.05, so you kick in another $20. At the end of the third year, you’re at $66.20, so you kick in another $20. At the end of the fourth year, you’re at $90.51, so you kick in another $20. Then, at the end of the fifth year, you’re at $116.04. Not bad, huh? You’re ahead of the game, right?

Now, let’s say you put in just a little more effort and put aside $25 each year instead of $20. After the first year, you have $26.25. After the second year, you have $53.81. After the third year, you have $82.75. After the fourth year, you have $113.14. After the last year, you have $145.05. By putting in just a little bit more effort all the way along, you have a lot more money, and the lead only grows from there.

The point of this is very simple: if you put in just a little more effort up front, the power of compound interest will amplify that additional effort. You’ll earn money at a faster rate than before. Your investment will snowball faster and faster and faster.

Now that we’re all on the same page about compound interest, I’m going to seemingly switch gears completely and point you toward a great talk by Richard Hamming. Here’s the text of that talk, but I really want to point you toward one single quote from that talk:

“Now for the matter of drive. You observe that most great scientists have tremendous drive. I worked for ten years with John Tukey at Bell Labs. He had tremendous drive. One day about three or four years after I joined, I discovered that John Tukey was slightly younger than I was. John was a genius and I clearly was not. Well I went storming into Bode’s office and said, “How can anybody my age know as much as John Tukey does?” He leaned back in his chair, put his hands behind his head, grinned slightly, and said, “You would be surprised Hamming, how much you would know if you worked as hard as he did that many years.” I simply slunk out of the office!

What Bode was saying was this: “Knowledge and productivity are like compound interest.” Given two people of approximately the same ability and one person who works ten percent more than the other, the latter will more than twice outproduce the former. The more you know, the more you learn; the more you learn, the more you can do; the more you can do, the more the opportunity — it is very much like compound interest. I don’t want to give you a rate, but it is a very high rate. Given two people with exactly the same ability, the one person who manages day in and day out to get in one more hour of thinking will be tremendously more productive over a lifetime.

Let’s focus on that key sentence: Knowledge and productivity are like compound interest.

When I read that sentence, I flash back to the single most productive period in my entire career. Over the course of about a year, I went from feeling completely overwhelmed in my job (which was a one year contract job) to cementing a permanent position and completing a project that I thought I would essentially never be able to pull off.

What did I do that made that transition happen? Honestly, looking back, it was two big things.

One, I basically didn’t waste downtime at work. If there was time when I didn’t have anything immediately to do (because I was waiting on something from someone else, for example), I spent that time trying to learn something new or improving something that already existed. If I truly did not feel energetic or motivated to work, I would go on a brisk walk and listen to some motivating audiobook and, usually, eat or drink something, too, so that I would feel great when I came back to my desk in thirty minutes or so. I basically did not allow myself downtime. At. All.

Two, I spent an hour most evenings learning something new. My employer purchased a bunch of materials for learning for me and I used them. I took books home on computer programming, on the science of the area that I was working in, on how to model data. I read those books and took notes on them for at least an hour each night, and I often tried out things I was learning about right at I was reading them. This was my routine for about an hour after work each night, as I arrived home before my wife did (I usually left well before she did in the morning, too).

Those two things were much like adding a big healthy dollop of money to my savings account each day. They started producing dividends immediately. I was almost immediately a little further along in terms of understanding the challenges before me than I ever had been before. With almost every passing day, I could feel myself progressing from completely overwhelmed to being able to handle small pieces of the project to being able to handle bigger and bigger pieces to being able to feel like I could manage the whole thing to actually feeling like I could handle this with ease and mold it into something great.

Later on in my career, I did a similar thing with networking. I decided to spend a little bit of time each day simply connecting with and getting to know other people in my field. Within several months, I had built a pile of really strong relationships within my field, some of which I still have almost a decade after switching career paths.

The key? In both cases, I just devoted a little bit of extra effort each day, and like compound interest, that little bit of extra effort built on itself quite rapidly until it grew into something amazing.

It doesn’t take that much additional effort, either. The value is that it grows on top of itself, just like compound interest. If you apply a little bit of extra effort consistently, you quickly go from being an average employee to being a great one.

The things you learn in that extra fifteen minutes or half an hour one day can be applied the following day. Plus, that next day, you’re fifteen minutes or half an hour further along in terms of learning about that topic, so you get even further ahead. Soon, you’re grasping topics or achieving things that are far beyond what you would otherwise be able to achieve.

Isn’t there an “upper limit” to this? There absolutely is. My experience has been that most people have about four to six hours of truly productive work in them per day. It seems to be true for me and true for many others. You can do “busy work” beyond that, but in terms of actually applying skill and solving challenging problems, that’s the limit.

Because of that, there’s only so much you can “add” to a given day and still get real value out of that time. The key is to make sure you’re “adding” enough to get to your daily cap of genuinely productive work before you start to trail off. Many people have days that are filled with pockets of downtime and busy work, so by using that downtime and some of that busy work time more productively (less web surfing and texting, more studying and smart tasks) one can reach that daily limit of productive time and thus maximize that “compound interest” of career benefits.

In simplest terms, most people have the focus to get six hours of really good work done per day, and when you come in below that, you’re wasting a huge career opportunity because of the “compound interest” effect of the genuinely useful things you could be doing with that time.

Sounds good. What’s the first step? The first step here is to cut out time wasting at work. Things that waste time, like visiting websites that don’t help you grow in your career or in your life, napping, playing games, and so on need to be cut out of your day. They’re not helping you succeed or to do anything other than pass the time, and every moment you spend on those things is a moment where someone is passing you by on the career ladder. Start working on recognizing when you’re wasting time at work and make an effort to fill that time with something more useful for your career instead.

You also may want to consider blocking off a little time in the evening for self-improvement and self-learning. I have found that spending an hour or so in the later stages of the day on studying, research, and brainstorming makes future days flow much better. It’s a phenomenon that’s been true in my career as a writer and, separately, in my earlier research-oriented career and my programming career. Simply setting aside half an hour or an hour after work closes focused entirely on what makes you and your career better and not just pleasing to your boss can make a huge difference in your career trajectory.

What specific things can I do to “compound” in my career? Here are seven things anyone can do to add some “compounding” to their career. Time invested in these things is almost never wasted, as each one will make you a more effective worker in your career path.

Network effectively, learn about the people around you, and build a lot of great professional peer contacts. There are countless ways to do this. You might get involved in a local Meetup group that’s aligned to your career goals, or find an online community that’s related to your career path. Maybe you’ll simply find people on Twitter or LinkedIn. Perhaps there’s a group of people in your office or corporate environment, or maybe there are conventions you can go to.

No matter what the case, devote time to getting to know other people in your field and spend some time maintaining those relationships you’ve built. Keep track of those people you’ve met and interacted with and follow up with them occasionally to see how they’re doing. It can even make sense to schedule these updates, or to take a few notes just so you’ll remember. What kind of coffee does this person prefer? What kind of personal struggle does this person deal with?

The more strong connections you build and maintain, the easier it will be to take the next step in your career.

Learn about the latest technologies in your field and practice using them if at all possible. This mostly revolves around staying up to date in your field by reading trade publications, blogs, and other materials related to your career path, understanding the material that’s being presented, and actually attempting to master the new skills and technologies and even apply them to your career.

One strategy that works well for this is to try to find ways to integrate these new technologies into your current work projects. For example, if you’re learning about a new computer programming methodology, ask yourself if there’s a way to include it in your current projects at work and, if so, try to integrate it and see if it clicks.

Brainstorm ideas to a specific problem you’re facing and then evaluate the results. This doesn’t have to be a direct problem; instead, it can just be something indirect, a rough patch in your work day. What’s something that you’re struggling with? What’s something that simply doesn’t go as smoothly as you’d like?

Spend some time focused on that one specific thing. Wrap your brain around it and look for solutions that might fix that problem or make it go away or make that process flow more smoothly. Then, once you’ve come up with a bunch of ideas, filter them a little and refine some of the best ideas. You may just find yourself with a little side project that, when implemented, will be a productivity boon for you and perhaps even for others in your office.

I’m reminded of the time that one of my coworkers spent several hours over the course of a few weeks rewriting the software we used to keep track of billable hours. At first, he just used it himself and, shortly thereafter, shared it with me as well. Eventually, though, it was shared throughout the organization, and it ended up improving everyone’s productivity and kicking back a lot of credit to him.

Learn a language that would enable you to communicate with a larger group of peers and clients. This might be a computer language, but it’s very likely to be a spoken or written human language. What language do your collaborators and clients use? That’s probably a language worth learning.

To get started, just download Duolingo and spend fifteen or thirty minutes a day focusing on your language of choice. Progressing through all of the Duolingo content on a specific language will take a while, but it will provide you with a solid baseline of grammar and vocabulary. If it’s a computer language, try using that new language to write some simple tools for your own use, as practical projects tend to be a great way to learn a new programming language.

Write an article on a specific aspect of your career and publish it somewhere. There are few better ways to really codify an idea in your head than to write it all out and organize it into an article in such a way that others can understand your thinking. Taking a concept that you understand reasonably well and working it through the grinder of turning your understanding into words and organized ideas is a very powerful learning technique.

Taking that end product and publishing it somewhere, whether it’s a publication or a blog or an online forum somewhere, serves the additional purpose of raising your profile within that community.

Prepare for an upcoming meeting by studying the presentation and researching some of the specifics, as well as some of the meeting attendees (if relevant). If you have an upcoming meeting to attend, it can be well worth your time to review the meeting’s agenda and any presentations in advance and do some homework on that topic, as well as on the people in the room.

The better you understand the topic of the presentation and the content within, the more likely it is that you will be able to give useful feedback or ask useful questions, which will not only increase your own knowledge but will increase the knowledge and understanding of others in the room.

Read and take notes on a book or article relevant to your field or relevant to your personal growth. Simply sitting down with a book relevant to your field, reading it, and taking notes on it as you go is a powerful way to spend your spare time at work or time in the evening. If you don’t have a particular book that makes sense, a book on personal growth, time management, or any topic like that is similarly powerful.

The time you invest in reading a book that aims to improve your comprehension of a field or aims to improve you is time well spent for your career.

These ideas are good, but I want more! If you’re looking for more ideas on how to apply “compounding” to your career path, take a look at my earlier article on twelve simple tactics for shoring up your career during work downtime.

If there’s one thing you should take away from this article, it’s this: when you apply a bit of effort consistently to improve your career standing and performance, that consistency pays amplified dividends, much like the power of saving a little more amplifies the power of compound interest when looking at finances. Overdoing it and burning yourself out isn’t good, either, but many people do have a bit more time than they think for improving themselves at work, and when you actually use that time well, it pays off in amplified ways.

Good luck!

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.