Return On Habit: How To Maximize Your Cognitive Capital
Questions Before Answers:
How does the financial concept of Return on Investment correlate to the mental model of Return on Habit?
How would Warren Buffett and Marquis de Sade differ in their perspectives on financial expenses?
Just what is Cognitive Capital? Where do habits fit in with this concept?
How does the Return on Habit strategy apply to the "pay me now" vs. "pay me later" concept?
What is the Return on Habit paradox?
How does the concept of 'deposits before withdrawals' apply to your habits?
How can you make your habits work for you?
Do You Work For Your Habits, or Do Your Habits Work For You?
What Is Cognitive Capital? Cognitive Capital is the wealth of intellectual and emotional resources accumulated through education, experiences, and introspection. It allows you to understand, process, innovate, and adapt while overcoming obstacles or recognizing opportunities. It's your portfolio of skills, knowledge, and habits that can continuously appreciate and improve.
The Importance Of Cognitive Capital: The quality of our lives depends on the investments we make in ourselves. The principles governing intelligent financial management—compound growth, diversification, adaptability, and strategic investment—apply equally to our personal development journey.
Cognitive capital also supports you when factors or outcomes are beyond your control. It can help you overcome, understand, improvise, or simply accept that not everything can be masterminded.
Cognitive Capital Currency: Habits are the currency of your Cognitive Capital.
The Impact Of Good Habits: Imagine every good habit and every positive action as an investment. By leveraging simple wealth management principles to improve your habits, you can experience personal growth and mental resilience.
The Impact Of Bad Habits: Conversely, think of every bad habit as a charge on your credit card that you'll have to repay in the future.
This isn't just a metaphor; it's a truth and a strategic blueprint for your life.
Self-Investment: Your mind is the ultimate investment portfolio. Each thought, habit, and decision is akin to a stock, bond, mutual fund, or expense impacting your cognitive wealth. By applying financial principles to your inner life, you can effortlessly maximize your returns on self-improvement.
Return on Investment vs. Return on Habit: Let's discuss how the financial concept of Return on Investment applies to your habit investments.
Return on Investment (ROI): This metric measures an investment's profitability relative to its cost. It is a financial tool that helps you determine if the money you have invested in an asset provides an acceptable return.
Is The Dime I Earned Worth The Dollar I Invested? Ultimately, you need to assess whether the return you receive justifies the time, effort, and money you invested. For example, if you invest a dollar and get a dime back, that translates to a 10% return, which provides the foundational metric for determining whether it is an acceptable ROI.
Return on Habit (ROH): This metric allows you to evaluate your benefits proportional to your efforts. In other words...
Is My Outcome Worth The Time, Effort, And Money I Invested? Return On Habit is the personal gauge that tells you if your efforts were worthwhile. Your expected Return On Habit will vary according to the value and importance you assign to a task.
Identical Words—Different Order: Four words reassembled to illustrate the Return On Habit concept:
The pain of discipline. Conceptually attributed to Warren Buffett.
The discipline of pain. Conceptually attributed to Marquis de Sade.
How Do These Two Hypothetical Quotes Relate To The Return On Habit Concept? The contrasting philosophies of Warren Buffett and the Marquis de Sade illustrate how your perspective can influence your beliefs and actions.
Buffett's Perspective: The Buffet model might suggest that enduring the pain of discipline in the short term is necessary for achieving long-term goals. He might advocate for structuring your life around building positive habits and making calculated decisions. For instance, from a financial perspective, this could mean keeping your perfectly functioning car for a few extra years before deciding if you need to upgrade and putting your 'saved' money to work.
De Sade's Perspective: The de Sade model might prioritize short-term and immediate gratification when evaluating options. For instance, this could involve purchasing the latest smartphone model, even if your current phone is only 10 months old.
The Foundation For Good Habits—Deposits Before Withdrawals: Imagine your good habits as a savings account. If you don't make deposits into your savings account, you cannot withdraw any money.
Nothing In—Nothing Out: Simply put, if you want access to money, resources, and reserves, you have to take action in advance.
"The best time to plant a tree was 20 years ago. The second best time is now." - Chinese Proverb
Return on Habit Paradox: An intriguing paradox arises when assessing your investments in good and bad habits. This paradox often clouds our judgment in the present moment.
Good Habits vs. Bad Habits: Here is the conclusion you may reach:
Good habits: temporary expense, permanent revenue.
Bad habits: temporary revenue, permanent expense.
Other notable individuals have shared similar conclusions:
"Patience is bitter, but its fruit is sweet." Often attributed to Aristotle.
"Beware of little expenses; a small leak will sink a great ship." Often attributed to Benjamin Franklin.
"The chains of habit are too light to be felt until they are too heavy to be broken." Often attributed to Warren Buffett.
"The cost of your good habits is in the present. The cost of your bad habits is in the future." Often attributed to James Clear.
"Discipline is the bridge between goals and accomplishment." Often attributed to Jim Rohn.
The following is a marketing example of whether or not to invest in a habit:
Pay Me Now Or Pay Me Later—FRAM Oil Filters: In the 1970s, FRAM oil filters combined fear, money, and common sense as their simple marketing strategy.
In many of their commercials, a grease-stained auto mechanic stands next to broken engine parts, holding an oil filter in his hand. He looks into the camera and says, "You can pay me now or pay me later."
This effective marketing campaign emphasized the importance of regular vehicle maintenance, particularly timely oil filter changes. The campaign conveyed that investing a small amount in regular maintenance ("pay me now") could prevent costly engine repairs later ("pay me later").
How Does The Return On Habit Concept Apply? Good habits employ the "pay me now" strategy, while bad habits illustrate the "pay me later" outcome of not investing in yourself.
Pay Me Now Or Pay Me Later—Habits: Just as regular oil changes prevent costly repairs, small, consistent actions can prevent more significant problems in personal and professional life. Consider the following:
Paying Now: Sarah exercises regularly and eats a balanced diet. These small, consistent actions (like paying for an oil filter change) help keep her healthy, preventing future health issues and medical expenses.
Paying Later: John neglects his health, eats poorly, and avoids exercise. Over time, he faces significant health problems requiring costly treatments. Neglecting healthy eating habits can result in expensive consequences.
Investing in small, regular habits can reduce or prevent more significant, costly future problems.
Your cognitive capital can lay the groundwork for your journey. Your habits can propel you forward even if you start without extra money, time, or knowledge.
Input Before Output: ROI and ROH focus on the relationship between your inputs and resultant outputs. In finance, this means money; in life, this means time and effort. Both require discipline, patience, and a strategic approach to maximize returns.
However, we must also acknowledge that some individuals face financial constraints and may need to work multiple jobs just to afford rent and groceries. Despite these challenges, even small changes in beneficial habits can have positive impacts.
Don't Mistake A Dime For A Dollar: It's easy to justify repetitive indulgences as productive activities.
Simple joys and easy victories—like a fancy coffee, a chocolate bar, or flowers for your home—can benefit our mental well-being. These can serve as positive acknowledgments and rewards for our progress and efforts.
It is essential to distinguish between what is rewarding and what is harmful to your overall well-being. If you want to eat healthier, occasionally indulging in a chocolate bar is not necessarily a problem. However, it could become one if consuming multiple bars daily becomes a habit.
Dimes: Reading about celebrity breakups is not equal to studying relationship dynamics, and binge-watching Netflix for eight hours isn't an effective alternative to self-care.
Dollars: True self-improvement and self-care often involve mundane, unglamorous tasks that yield significant benefits over time. It's about choosing to shop for healthy food, flossing your teeth, reading a book that challenges your mind, or turning your Netflix time into a productive activity by exercising while you watch.
The Return On Habit model often begins at a very basic level. Many people do not have the time or resources to buy 100% organic foods or make all their meals from scratch. But you don't need to do everything to make a difference in your life; simply eating less junk food can be a significant first step.
Bad habits may seem inexpensive in the short term, but they add up. In contrast, good habits may require more effort upfront, but they return dollars in the form of long-term benefits.
Mr./Ms. 'Right Now' vs Mr./Ms. Right: To create authentic and substantial life improvement, you must learn which habits are casual flings and which are your long-term investments.
The Poor Work For Money—The Rich Have Money Work For Them: Your perspective and how you view your resources, such as money, time, efforts, and habits, ultimately determine whether you consistently achieve your desired outcomes.
Habit Never Sleeps: When you invest your money to work for you, your money works every minute - automatically. Habits are the same way. When you invest in yourself, your habits automatically work for you.
Remember, bad habits do not sleep either.
Rich Habit—Poor Habit: It is that simple. Do you want your habits to make you rich or poor?
The Personal Lesson: My wife is an attorney and had a wealthy, self-made real estate investor as her client. Over the years, they also became very close friends. This friend was about 25 years older than my wife and had a practical, no-nonsense, Judy Judy-esque approach to her business and money.
Nobody Cares… Like You Do: My wife would return home and discuss how appreciative she was of her friend. They often discussed life issues (and probably husband issues) along with money management and investment perspectives. After one meeting, my wife told me, "Arlene said something self-evident yet very true. She has repeated it many times. She said, 'Nobody cares about your money as much as you do.'"
The $25 Perspective Lesson: Arlene shared a story about a small but important financial lesson. She found an innocent error in a repair bill. The repair person overcharged her by $25 on a $300 invoice by including a charge for paint that she had supplied herself.
Where's Waldo? My wife was amazed that Arlene's discovery wasn't just something worth $25, but this expense was almost hidden in the scribbled invoice summary of: "labor, sheetrock screws, drywall, and paint." Arlene found this error only through careful scrutiny.
Understanding Perspective: Although Arlene was a bit annoyed, she realized that the repair person didn't pay attention because it wasn't their money. The real lesson here is about perspective.
Pay Attention To Your Habits: If you don't invest and monitor your habits, nobody else will.
Conclusion—How To Make Your Habits Work For You: Sound financial management principles also apply to the foundation for a life of purpose, resilience, and boundless potential.
Return on Habit—Analysis: How do you recognize when you are creating a good habit vs. a bad habit?
Good habits: temporary cost, a permanent gain.
Bad habits: a temporary gain, a permanent cost.
Return on Habit—Creating Good Habits: Transforming habits from casual flings (bad habits) into long-term investments (good habits) requires a shift in perspective and a commitment to consistency. By viewing your habits as strategic investments, you ensure that your daily actions are not just expenses but building blocks for the life you want to lead.
Thoughtercise—Are Your Habits An Expense Or An Investment? List five 'habits' you either possess or desire to acquire. Consider these concepts when creating your list:
Good habits build wealth slowly; bad habits accumulate debt swiftly.
Good habits are the currency of future wealth; bad habits are the loans of future poverty.
Ask Yourself A Simple Question: Do you want to work for your habits, or do you want your habits to work for you? For each habit, determine your actions to make these habits a positive investment rather than a casual expense.
Return On Habit—Your Thoughts May Vary: Thought Improvement welcomes your constructive appreciation comments and invites you to share your perspectives, ideas, and suggestions. Together, we can all improve our thoughts.
Follow me for further explorations of habits, including the follow-up to this essay, which details how to develop positive habits. Topics include goal setting and system design, fear of failure, inconsistent effort, lack of focus, motivational deficiencies, negative self-talk, decision-making, time management, procrastination, willpower, and more.
Click here for our Disclaimers, Disclosures, Disavowals, And Declarations (aka - I told you so).
Epilogue: Exponential Rice
Do you ever doubt that even a small contribution can make a big difference down the line? Let's look at a well-known parable...
A wise man impressed a ruler with his wisdom. As a reward, the wise man requested that he be paid in rice, using a chessboard to determine the amount. He asked for a single grain of rice on the first square, two grains on the second, four on the third, and so on, doubling the amount on each subsequent square until all 64 squares were accounted.
Initially, the ruler thought this was a modest request, but as the servants began placing rice on the chessboard, it quickly became apparent that the amount of rice was growing exponentially. By the time they reached the 20th square, they were placing over a million grains of rice.
This story is a powerful metaphor for understanding exponential growth and how quickly it can escalate beyond expectations. So, start making changes today, and reap the rewards in due time.