Chapter 3: How Money Grows — Compounding, Doubling, and the Rule of 72

Most people think money grows in a straight line.

It doesn’t.

It grows like a snowball rolling downhill — slow at first, then faster, then suddenly unstoppable.

This chapter explains compounding in simple terms, shows you how to estimate doubling time without math, and gives you the tools to understand how your money grows over decades.

The Big Idea

Money grows exponentially, not linearly.

Small amounts, invested consistently, become large amounts over time.

What Compounding Actually Is (In Plain English)

Compounding is when:

• your money earns money
• then that money earns money
• and the cycle repeats

It’s growth on top of growth.

You don’t notice it at first.

Then one day, the numbers start to jump.

This is why people say:

Because after that, compounding starts doing the heavy lifting.

The Rule of 72 (No Math Required)

The Rule of 72 is the simplest way to understand how fast your money doubles.

Just take:

Examples:

• 10% return → doubles in ~7 years
• 7% return → doubles in ~10 years
• 6% return → doubles in ~12 years

You don’t need to be exact.

You just need to understand the shape of growth.

Real‑World Examples (Using Simple Numbers)

Let’s say you invest $10,000.

If it doubles every 10 years:

• After 10 years → $20,000
• After 20 years → $40,000
• After 30 years → $80,000
• After 40 years → $160,000

Notice something?

You didn’t add a single extra dollar.

Time did the work.

Now imagine adding money consistently.

That’s when compounding becomes life‑changing.

Why People Miss Out on Compounding

Because they get emotional.

They hear:

• “The market is overvalued.”
• “This time is different.”
• “Get out because _ got elected.”
• “It’s only being propped up.”

And they pull out of the market.

But here’s the truth:

Every time you jump in and out, you break the compounding engine.

A Simple Timeline You Can Picture

Compounding is easier to grasp if you think in decades:

• Years 0–10: Slow and steady — you may wonder if it’s working.
• Years 10–20: Numbers start to jump — the snowball has mass.
• Years 20–30: Growth looks dramatic — most of your gains appear late.
• Years 30–40: It feels like it “accelerated” — that’s just compounding at work.

You don’t need perfect conditions. You need time in the market.

Adding Consistent Contributions (Simple Example)

If you invest $300 per month at ~7% for 30 years, you end up around $350k–$370k.

It’s not magic — it’s consistency plus time. The earlier you start, the more time does the heavy lifting.

Action Steps

• Write down your current savings.
• Multiply it by 2 — that’s your “doubling target.”
• Use the Rule of 72 to estimate how long doubling takes.
• Repeat for each decade of your life.
• Commit to staying invested long enough to let compounding work.
• Ignore emotional headlines — they break the compounding engine.

Star to Steer By