Compound Self-Improvement Yearly with the 5% Rule

“Go to bed smarter than when you woke up.”

— Charlie Munger

Our most fundamental motive is to evolve. For me, this motivation was accelerated by the pandemic in an effort to intentionally emerge on the other side a better, more knowledgeable version of myself- armed with the skills to best compete in an unprecedented new normal. In uncertain times, improvement is key. Uncertainty brings competition and improvement is necessary to maintain an advantage. However, I will be the first to admit that I don’t always follow through on the habits I know will make me better. Amidst all the uncertainty and elements out of my control as a result of the pandemic, I wanted to take accountability for what I could control- my time and how I chose to spend it. Specifically, I wanted to spend my time in a way where I went to bed better than when I woke up.

Reading is one of the best ways I know to accomplish this as reading allows you to master the best of what other people have already figured out (reading is also a high ROI activity in that it improves not just your reading ability but also writing and speaking abilities among other benefits). My problem was, I never followed through. In one of my first pandemic reads I was struck by the following quote from Carol Dweck, a pioneer of the “growth mindset” and author of the book Mindset. “You have to apply yourself each day to becoming a little better. By applying yourself to the task of becoming a little better each and every day over a period of time, you will become a lot better.”

I have wrote to you several times over the years regarding New Years resolutions, self-improvement and identifying habits/tasks that bring you a personal sense of accomplishment. Since then I have experimented with various rules and frameworks to find a repeatable process for systemizing resolutions/goals into continued self-improvement. This quote in the context of the pandemic was the motivation I needed to re-energize my experimentation. Like many of us, I am someone who needs to track my results in order to hold myself accountable and encourage continued progress. My first challenge was determining how to best track my broad pandemic goal of “going to bed better than when I woke up”. After some thought, I translated this goal into a theme of mental health/knowledge. Underneath this theme, I identified corresponding tasks/habits that I could quantify to track my progress towards this goal: 30 page reading sessions (in sessions), podcasts listened to (in hours) and LinkedIn Learning courses (in hours). I then reviewed my existing goals/resolutions to identify additional themes. Three themes became apparent from this review- mental health/knowledge, physical health and financial health. Underneath each theme, I brainstormed and listed quantifiable tasks/habits that would lead me toward my goals. I organized this information on a Google Sheet, tracked progress each day and input my results at the end of each month.

The 5% Rule

As 2021 rolled around, I had 9 months of data but remained unsure how to translate this data into continued improvement. It was then that a trusted friend introduced me to the Farnam Street blog where I found my answer- compounding self-improvement using the 5% rule. Through various articles I learned that compounding works in areas besides money and that those who understand compounding can make it work for them. Specifically, “when we want to improve ourselves, we often pursue dramatic changes with little success. A better idea is to go for small, incremental improvements that add up over time. Habits are the compound interest of self-improvement. The same way that money multiplies through compound interest, the effects of your habits multiply as you repeat them. They seem to make little difference on any given day and yet the impact they deliver over the months and years can be enormous. It is only when looking back two, five or perhaps ten years later that the value of good habits and the cost of bad ones becomes strikingly apparent. If you can get 5% wiser every year then you will be about twice as wise as you are now in less than 15 years. In less than 30 years, your return will be 4x.”

This was my lightbulb moment. Armed with a new understanding of compounding, the 5% rule and baseline data I collected, I now had actionable next steps to systemize my self-improvement for 2021 and beyond. Importantly, I no longer needed to start from scratch each year, choosing goals and target results based on subjective data (my opinion). Instead, what I needed to do was group goals/resolutions into themes, identify quantifiable tasks/habits related to each theme, track objective data and use this data to inform future target results. Below, you will find a link to a template of the system I have created and use personally. To be clear, I am not here to tell you what your goals should be. Rather, I want to help you systemize progress towards the goals you have already determined for yourself in 2021 and beyond! If you are interested in learning more about the template and how I recommend you interact with it, please click the link below, select the Use Template button in the upper right hand corner and keep reading!

2021 Goals Template 1.0

Template Explanation/Instructions

2020 Tab (Baseline): The 2020 tab represents data I collected during the pandemic (using example data). Column A shows the various themes (color coded) and corresponding tasks/habits that I tracked throughout the year. As I had never collected this type of data before, nothing is populated for 2019 Results (Column P) or 2020 Goal (Column O). The 2020 tab served as my baseline. As I entered monthly data throughout the year, totals populated the 2020 Total column (Column N). Your first year collecting data will look similar as you establish your baseline.

2021 Tab: This is where the 5% rule comes into play. I populated my 2020 results in Column P from Column N on the 2020 tab. Then, to set my 2021 goals, I increased my 2020 Results by 5% and listed this value in Column O, the 2021 Goal column (using a formula included in the template). As I am more of a visual person, I used conditional formatting to represent progress towards my goal on a scale of red to yellow to green, with green indicating the goal has been met (this is optional). I populated example data into Column B (January) so you can see what that looks like in action!

2022 Tab (and beyond): Populate Column P with results from Column N on the 2021 tab. Then, to set 2022 Goals, add 5% to the value in Column P (formula included) and you are on your way to another year of compounding self-improvement.

In closing, I have always struggled with the goal of “reading more”. 2020 was different. This difference was not notable at the end of each 30 page reading session until the end of the year, when my stack of books read was larger than the previous 3 years combined. You see, enormous outcomes are largely the result of a series of small actions that culminate into something visible, like the stack of finished books pictured above. What started small as 30 page reading sessions compounded into something more over the course of a year. Now, imagine what starting small can compound into over 15 years? Over 30 years?

Ultimately, whether you find this system helpful or not, the most important takeaways from this post are an understanding of the benefits of compounding and experimenting until you find a system to make it work for you! Good luck!


Identifying Themes

Themes can be identified from reviewing your New Years resolutions or existing goals and consolidating trends into themes. A good place to start is with things that compound: knowledge, fitness and finances.

Identifying Tasks/Habits by Theme

In addition to those provided on the template, below you will find more examples of tasks/habits to consider tracking:

Mental Health/Knowledge: Pages journaled (in pages), blogs published and informational videos/webinars viewed (in hours).

Physical Health: Total workout days (in days), Yoga (in hours), biking (in both miles and hours), etc. This category can be used for any physical activity you would like to track! I have found the best way to track this data is via FitBit/Apple Watch. If you don’t have one you could always track this manually on a whiteboard or through the notes app on your phone! If you do have one you can also track your monthly steps, calories burnt and distance traveled as these statistics are easily isolated by month or year.

Financial Health: Money invested, retirement contributions, income, expenses (all in dollars) and days with less than $X amount spent (in days).

Lifestyle Goals: Days eating vegan, days eating vegetarian, days following X diet and days without alcohol (all in days).

Tracking Data

I track progress in various applications (Strava, Spotify, etc.), iPhone notes and on a whiteboard in my office depending on what makes the most sense. I enjoy using the whiteboard as I am able to see my progress every day which encourages me to keep going. Then, on the last day of the month, I enter data into the template. However, you can also use the Google Sheets app on your phone to enter data in real time. The most important thing is to continually experiment to find what works for you!

The template shared is my first version and will likely change over the months/years as I learn more about what works and what doesn’t. If anyone has any immediate feedback, it would be much appreciated! Also, if anyone is interested in using this system but needs help applying it, please feel free to reach out as I would be happy to offer my suggestions or provide clarifying information!

Blogs referenced in this post: