5 Secrets to become a Crorepati !!!
(1). Getting wealth in inheritance
(2). Winning a Lottery
(3). Become a Celebrity
(4). Marry a rich person
(5). Save & Invest !
Well 4 of the out of the five ways are not in our direct control but the fifth one is surely in our control and that is save and invest.
Eat less and exercise more, that is the rule to be followed if you have a weight-loss goal in mind, they say. Well, it is no different when there is money involved.
A parallel universal truth with regard to money is spend less, save more, for you to reach your ideal level of wealth. The earlier you start saving for your rainy day the richer you will be when it finally arrives.
In this context, you need not be a whiz in your attempt to make yourself financially secure for the future. You simply need to be consistent in saving a portion of your money and let it compound over time. The fascinating effect of compounding gathers up momentum over longer periods of time and becomes an avalanche of wealth.
How does compounding work?
When you save Rs 100 and get an annual interest of 10%, you will have Rs 110 at the end of one year. Due to compounding the next year you will get a 10% interest on Rs 110, which will then leave you with Rs 121. The next year, interest will be calculated on Rs 121 at 10% and so on. In time, these savings will grow exponentially.
The Rule of 72: 72 divided by your return rate = the number of years it’ll take to double your money.
There are certain number rules that have been evolved to figure out a quicker method for calculations, especially in finance. Rule 72, is one such quick method of calculating how much time it will take, for your investment to double.
So, if you invest Rs 100 with a compounding interest of 10% per annum, the rule of 72 gives 72/10 = 7.2 years as the approximate time frame required for the investment to become Rs 200.
like that way you can surely get Rs. 1 crore if you start today and invest 1444 per month for the next thirty years assuming a return of 15% per annum. lets look at the table with the different amount you need to invest to achieve your desire wealth!!!
|Desired wealth & amount to be invested per month|
|Target for years||5 lacs||10 lacs||20 lacs||50 lacs||1 crore|
Power of compounding and why you must start early
Let’s take an example to understand it better. Say ajay who is 30 years old and wants to retire at 60. He has 30 years to go. If he starts investing Rs 1,500 per month for the next 30 years, then at the rate of 15 per cent (assuming s/he is doing a systematic investment plan in equity mutual funds) s/he will have a corpus of Rs 1.03 crore.
Where as if Ajay doesn’t start at an early but decides to invest when he turns 50 the to have a corpus of Rs one crore he will require to invest Rs 41,500 per month, the reason for the huge difference in per month investment is the extra 20 years if Ajay starts early. when he starts at age 30 then with power of compounding his investments got a period of 30 years
While this may not be possible starting your retirement planning when young is. It is not necessary to start with a bang. You can start with small amounts and increase it as your salary increases.
That’s why Albert Einstein said about Compounding of Capital: “Compounding is mankind’s greatest invention because it allows for the reliable, systematic accumulation of wealth.” He called it the 8th wonder of the world.
Where to invest?
well I have assumed a rate of return of 10% and 15% in my above mentioned examples, if as seen above one plans to invest regularly and for long term then looking at the history of share market and mutual funds SIPs one can expect a return of 15-20 % per annum but even those who doesn’t want to take any risk then any invest options like PPF, increase in the amount of PF, FDs can get you 8-10% returns. the main purpose of this article is to let you know the power of compounding and we will see in next series of articles about where to invest and the best schemes available for the same looking at the age, income and risk taking appetite of the investor.
So what should You can do to benefit from Compounding?
You don’t have to be rich to invest. In fact, you can surely become rich; just by starting with a very small amount of money and letting it compound over a long period of time.
Here is a practical list of action steps that can help you benefit from Compounding:
- Start early: even if you start with a small amount.
- Invest regularly: consider investing through the entire period detected.
- Leave your money uninterrupted: don’t disturb the process of compounding.
- Be patient: Compounding works only over long periods of time.