How Money Grows

In the previous article, we spoke about saving and investing and how they serve different purposes of savings keeping your money safe and investing giving your money a chance to grow.

But how does money actually grow?

Most of us imagine growth in a straight line. You put some money away, it increases a little, and then it increases by roughly the same amount again the next year. But thats not how it works in most cases

When you invest, the returns you earn don’t sit separately. They get added to your original money. From that point on, you’re not just earning on what you put in, you’re earning on everything your money has already earned.

This is called compounding.

Example:

Imagine you invest ₹1,000 and it grows by 10% in a year.

After the first year, you have ₹1,100.In the second year, the growth is not calculated on ₹1,000 anymore, it’s calculated on ₹1,100. So instead of earning 10% on ₹1,000 again, you will earn 10% on ₹1,100 at the end of the second year.

Then on ₹1,210.

Then on ₹1,331.

Every year the return you get will be bigger. At first, it may feel like small increases. But over time, those small additions start stacking up. That’s when growth begins to feel faster  because your money has had time to build on itself.

Why time matters so much

This is why investing early matters more than investing big.Money needs time to repeat this cycle of earning, adding, and earning again. The longer it stays invested, the more chances it gets to grow on top of itself.

This is also why saving alone often isn’t enough. Savings are important because they protect your money. But they usually grow slowly, and sometimes not fast enough to keep up with rising prices of inflation (covered in the next module).

Investments, on the other hand, give your money the ability to grow faster over long periods. 

What this means in real life

Two people can earn similar amounts and still end up in very different financial positions. Often, the difference isn’t intelligence or luck, it’s simply when they invested their money and how long they stayed invested.

You don’t need perfect timing or large sums of money. Small, regular investments made consistently over time often matter far more.