Compounding: dadi's gullak that nobody clapped for

Every evening, dadi put a ten-rupee note into her clay gullak, and every evening the grandchildren laughed. It was one note and a small rattle. Nobody thought it was going anywhere, and nobody clapped.

What compounding is

Compounding means that what you add starts to earn, and then what it earned starts to earn too. The growth is built on the growth. The investor Charlie Munger is among the people who made the idea famous.

Dadi's gullak only adds, so on its own it is not compounding. What it gives is the habit that compounding needs: turning up, again and again, for a long time. The multiplying starts when the saved money is also allowed to earn.

The example: Arjun's small SIP

Arjun is 26, works in a Nagpur office, and sets up a SIP (a fixed amount invested every month) of ₹2,000. For this example, assume his money grows by 10% a year. That rate is made up to show the shape. Real returns go up and down, and nobody can promise a number.

Look at what happens to the pile.

• After one year he has put in ₹24,000. The pile is about ₹25,000. The extra is about ₹1,100.
• After five years he has put in ₹1,20,000. The pile is about ₹1,55,000.
• After ten years he has put in ₹2,40,000. The pile is about ₹4,10,000.
• After fifteen years he has put in ₹3,60,000. The pile is about ₹8,30,000.

The last five years add far more than the first five, and he did nothing different. The early years feel like nothing because the growth has very little to grow on. This is the part that makes people stop. Arjun's cousin quits in the second year, because the page says almost nothing happened.

The same shape without money

Twenty minutes of reading a day looks like nothing on a Tuesday. After a year, it is easier to follow the next book, because you already know some of its words. A phone call to your parents every Sunday looks like nothing too. After some years it is the reason you know what is worrying them before they say it.

Where it stops, or goes wrong

Compounding works against you as well. A loan or a card balance that grows on its own growth is the same shape pointing the other way. And the shape needs time, so it breaks when you stop early or keep checking whether it has started yet.

It is also not a promise. In the example the rate is assumed, and the real one can be lower for years. Use the model to see time differently, not to decide what to buy.

One thing to try today

Pick one small thing, either 20 minutes of reading or a call to a parent, and do it once before tonight. Do not count it, track it or tell anyone. Tomorrow, do it again if you feel like it.

This is a way to think, not financial, medical or legal advice.

Each Sunday: one mental model and one real decision to try it on. Find more in the /models library.