i’m quite new to the finance world and I’m having so much fun learning about new things everyday. The objective is to manage my finances better and generate wealth through accumulated funds. I’m a newbie and don’t really understand investments. FD’s seem too low of an interest rate to start with cause my capital is low. Also I hear everyone talking about compounding but when you think about it it only makes sense if you start AS SOON AS YOUR BORN and it comes to fruition only when you get old. Is there a better and realistic way to do this? without spending all your life investor and only reaping the fruits when you’re too tired to walk?
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Yes, compounding truly has the power to help you build generational wealth. If you are new to investing, always remember the importance of diversification spreading your portfolio across assets like gold, stocks, and fixed deposits. This balance can protect you during market downturns while still giving you opportunities for growth.
The key reason compounding is so important is that it allows your money to grow exponentially over time. When you reinvest the returns you earn, those returns start generating returns of their own. This “snowball effect” means even small, consistent investments today can turn into substantial wealth in the future.
It’s always better to start early rather than delaying. The sooner you begin, the more time compounding has to work its magic. So, start your SIP (Systematic Investment Plan) now the best investment decision is often just getting started.
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Thank you so much aarav. i still don’t understand it that well but this was quite informative
guess you need to be as smart as Einstein to understand it
Go and read all the posts on finanjo community to understand better about personal finance.
Insightful content Aarav!
These days, compounding is often advertised as the ultimate solution for building wealth. While it is powerful, the truth is that compounding only makes a real difference if you start very early with a large amount of money. It can create passive income, which is great to have, but it is not the only path to financial success.
In reality, having a strong active source of income such as a good salary, business income, royalties, consulting, or licensing deals can be far more important in the early stages of your life. The reason is simple: active income does not require a huge starting amount of money. Instead, it relies on your knowledge, skills, network, and ability to get things done. These are things anyone can build.
But there is a catch. As people grow in their careers and increase their income, they also increase their spending to match. Lifestyle inflation eats away at most savings and often leads to debt. To avoid this trap, you can follow a few simple rules:
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Do not spend what you cannot repay. If you need refinancing, loans, or “jugaad” to cover a purchase, it is not worth it.
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Delay unnecessary spending. Instead of buying things for instant gratification, redirect that money into improving yourself through courses, certifications, building skills, or expanding your network. The returns from this investment are unmatched because your own growth is the biggest factor in your financial success.
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Avoid large expenses too early. Buying a big car or house in your 20s or early 30s can drain your savings and limit your investments. A small, affordable car (say, under ₹4 lakhs) is more than enough. For housing, try to live with your parents as long as possible, or choose arrangements where rent is covered by your employer or shared in a way that keeps your cash flow light.
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Leverage the 7-year rule. In most industries, after about 7 years of solid work, people reach a stage where bigger opportunities appear such as leadership roles, partnerships, launching a venture, or consulting as a subject matter expert. That is your real breakthrough point, but only if you have been preparing.
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Balance active and passive income. Start compounding as soon as you begin earning, but keep your main focus on growing your active income because that has the highest impact early on. For passive income, the simplest and most effective tool is investing in index funds. Just keep buying Nifty 50 regularly. Over the long run it always grows, and in a 7-year horizon it almost always gives strong returns.
In short: compounding is good, but your career growth, skills, and active income will take you much further in the beginning. Keep expenses low, invest in yourself, and prepare for the bigger opportunities that come after a few years of experience. Combine that with steady investments in index funds, and you will build both active and passive wealth the right way.
Solid advice zod. you’ve really helped get a grasp of how compounding really works