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-a smaller world size (possibly both above and below).
-a world without extra creatures/resources added in settings.
-"dumbing down" any resources/creatures that you don't need as much of.
-a world without mods .
-a world without caves (as caves require 2 separate servers running at the same time, and takes a lot from any PC).
^If other people in the households are using the internet, you might need to do all of those to prevent lag.
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-Make sure neither of you have any programs running in the background or any windows/tabs open in the background.
-Both of you should try enabling "netbook mode" and turning off "small textures" in the game settings menu to see if that helps any.
-The longer you play; the more resources/items/creatures/etc there are. That plays into lag/rubberbanding as well.
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*When playing online the following also apply:
-The more people you have in a server, the more PC power required.
-If the people joining your server are from other countries, or even the same country but kind of far away, this also lends a hand in the lag/rubberbanding/glitching.
-It can also be due to high latency (congestion/bandwidth/connection type/etc).