Exponential growth is one of the most powerful principles in the universe. Having an intimate understanding of how it works can make you a master of money and success.

Basic Definition

On the most basic level, the principle states that the bigger something is, the faster it grows. It is most commonly referenced when speaking on the topic of investment income, but the reach of exponential growth doesn’t stop there.

Investing and Exponential Growth

Investment gurus emphasize the importance of starting early to reap the long-term power of exponential growth.

As an example, lets assume that a certain mutual fund grows reliably at the rate of 10% per year. If you started with $100 in the fund at the beginning of last year, you would have earned $10 on your investment by the end. At the same time, if your sister had invested $1000, she would have earned $100.

By having ten times the money, your sister earned ten times the return on her investment with the same amount of effort. While this is impressive, the real power of exponential growth is released with patience over time.

If you and your sister continue to hold your investments for another year without adding any new money, something interesting starts to happen. Your new investment basis for this year would be $110, or $100 of principle + $10 of interest earned last year.

Instead of earning $10 like last year, your return this year will be $11, because 10% of $110 is $11. Because of exponential growth, you earned an extra $1 this year without doing a thing. This concept is called compounding, and can be further explored in my article about calculating compound growth rates.

While you made an extra $1, your sister made an extra $10 for a total return of $110! Her increase alone is more than you made in all of last year!

While we are just talking about two years, the compounding effect over a number of years can result in creating a ton of money, without any added effort except for patience.

As an example, if you invested $500 per month into mutual funds earning 12% from age 25 to age 55, you would end up with $1,747,482.07 at the end, even though you will have only contributed $180,000 of your own money over the 30 year period.

You harnessed $1,567,482 of exponential growth by being patient.

Stocks are not my favorite asset class, but they work well to illustrate exponential growth. You can achieve much higher rates of return with a little creativity and good old fashioned hard work; but, you must first understand how exponential growth affects other areas of life.

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Exponential Growth

The signature of exponential growth is an accelerated upward curve like in the image to the left.

This hypothetical graph shows the exponential growth of some value over 24 periods, which could be years, months, days, or whatever. Since exponential growth is a universal principle, the measured value could be just about anything.

It could represent investment money, expertise in a certain field, celebrity status, the acceleration of a rocket, sales figures, or blog traffic. The interesting thing is that all of these fields, and countless others are all affected by the same universal principle.

Attention Span

The red line that has been drawn vertically above the number 6 represents the end of an average human being’s attention span. Notice how no results are visible until about the 5 1/2 period mark, and the results after six are just barely visible.

Most human beings, after seeing almost no results for their hard work, lose interest and quit at the red line. From their perspective, they weren’t getting anywhere.

If they understood exponential growth, they would have realized that their results were just barely beginning to materialize. If they continued to be patient, the results will start to come more easily.

Downward Spiral

Unfortunately, when you quit something and start over with something else, you start back at the beginning of the exponential growth curve. All of the time you spend compounding before you quit has now gone to waste.

Most people get into the nasty cycle of quitting just before they realize real results and starting over time and time again. Think of someone who changes jobs every six months, or always has a new money-making scheme.

Mastery of exponential growth is mastery over the emotional pull to quit.

Here are a few examples of how the universal principle of exponential growth affects different areas of life:

Blogging

It’s fascinating to see the principle of exponential growth acting so vibrantly in the blogosphere. Take a look at this chart to see what I’m talking about. This is a graph of the growth of Genius Types feed subscriptions since the beginning. Notice the signature upwardly-accelerating curve!

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Isn’t that amazing? Exponential growth really is everywhere. It’s not just showing up in my subscriptions. I am seeing compounding growth in my traffic stats and income also.

The most amazing part is that I am seeing a compound monthly growth rate of 44% in my traffic stats. Remember when I said that you can achieve much higher rates of return with a little creativity and good old fashioned hard work?

You would be lucky to get a 15% return per year in the stock market. This blog is compounding at 44% a month.

If I had quit in February, when growth was relatively slow, I never would have seen the exciting gains that I’m seeing today.

The big dogs like John Chow grow at an enormous rate because they are already bigger. It’s as if they have their own gravitational pull. The rich get richer…

Career

It took me awhile to figure out how exponential growth affects your career. The longer you are in a certain field, the easier you find success. Everyone has heard of the “learning curve,” well, it’s exponential.

The more expertise you have in a certain field, the easier it is for you to get sales, find new markets, avoid mistakes, and spend time making money instead of learning how to. The more you switch careers, the more you have to start over at the beginning of the growth curve.

Most people make the mistake of choosing the highest paying career right out of college instead of the career of their passion. They reason that they will switch to their passion after they make some money, but they never end up in their passion.

If they would have started out with their passion, even though it pays less, they would have ended up richer in the long run. By starting out small, and gradually compounding your expertise and talent, you can leverage your passion into exponential growth.

Special Skills

Have you ever heard of a jack of all trades, but master of none? I used to embody this phrase.

I was blessed with talent from birth, but not patience. I’ve dabbled in all kinds of different skills: guitar, painting, graphic design, web-design, writing, entrepreneurship, film making, producing, and on and on…

It wasn’t until I started to stick with things that I began to see results.

Debt Reduction

The biggest mistake that most people make when trying to get out of debt is changing their plan. The best way to get out of debt is to come up with a plan and stick with it.

Every time you change strategy, your exponential growth curve starts over at the beginning.

Losing Weight

Isn’t it true that the more weight you lose, the easier it is to lose more? A couple of years ago, I had gained some weight and decided to get back in shape.

When I started my exercise plan, I couldn’t believe how hard it was! The weight I had gained was making everything more difficult. Since it was more difficult, it was harder to get motivated to do it in the first place. Since I wasn’t working out, I wasn’t losing weight.

This downward spiral affects a lot of us. The only way to overcome this is to use what I call the crowbar. I wrote a detailed article about it here, but basically it means to force yourself over the hump with a burst of energy and motivation.

Once you’ve made a little progress, progress gets easier. It took me a long time to start losing weight. I felt like quitting several times, but if I did, I would have had to start back at the beginning.

Mastering Exponential Growth

To master exponential growth is to master the emotional forces that are trying to get you to quit. When you realize how it works, you can find the extra motivation (the crowbar) to harness its power.