Meera and Kabir get their first jobs at 25. Meera sets up a ₹5,000 SIP with her first salary. Kabir decides to wait until he’s earning more.
At 35, he is. He starts a SIP of ₹10,000 a month, double hers. Both keep paying until 60.
Kabir puts in ₹30 lakh. Meera puts in ₹21 lakh. At 12% a year, Kabir retires with about ₹1.7 crore. Meera retires with about ₹2.75 crore.
He saved more. She started sooner. Ten years of “later” cost him about a crore.
What’s going on
This is compounding: your money earns a return, and that return starts earning returns of its own. Growth stacks on top of growth.
At first it looks like nothing. ₹100 at 12% becomes ₹112, then ₹125. Boring. But each year grows a bigger pile. At 12%, money roughly doubles every six years, so in thirty years it doubles five times.
Writer Morgan Housel points to Warren Buffett, who bought his first share at 11 and never stopped. Of the $84.5 billion he was worth when Housel wrote The Psychology of Money, $81.5 billion came after his 65th birthday.
As Housel puts it: “His skill is investing, but his secret is time.”
Think of a banyan tree
A banyan drops roots from its branches. The roots reach the ground and thicken into new trunks, which hold up new branches, which drop more roots.
Kolkata’s Great Banyan is at least 250 years old. It now covers about four acres and looks like a small forest.
Nobody planted those trunks. The tree grew them out of its own growth.
Where you’ll spot it
- Credit card debt. Leave a bill unpaid and the bank adds interest to it. Next month, you pay interest on that interest too.
- Inflation. Prices compound too. At 6% a year, what costs ₹100 today costs about ₹179 in ten years.
The catch
Compounding only works if you leave it alone. Selling your fund in a bad year, or breaking an FD for a new phone, resets the clock. The biggest gains come at the end, so the years you cut would have paid the most.
Returns aren’t promised either. Markets fall, sometimes for years. Time lets the good years outweigh the bad.
How to use it
- Start now, even small. ₹1,000 a month from 22 grows to more by 60 than ₹5,000 a month from 40.
- Use the rule of 72. Divide 72 by the yearly return to get the years your money takes to double. At 6%, twelve years. At 12%, six.
- Clear expensive debt first. Few investments will compound for you as fast as a credit card compounds against you.
Money is the seed. Time is what turns it into a forest.
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