Start early and be a Millionnaire !

Start early and be a Millionaire !

How to deal with newfound freedom to spend money ?

When we are young, we are attracted to the vast world of consumerism and all our wishes owning things in the world. With the new found freedom of having money in the pocket and having no accountability, we like to spend all of it on ourselves and our interests, and righly so. Most of us dream of being rich, not having to work day and night and having a good corpus of money in our bank accounts. However majority of us dont know how to accumulate wealth and end up in a rat race, never having enough even to cater for our essential needs. And no-one teaches us about wealth creation, savings and investing. 

Saving and investing will lead to wealth creation 


Wealth is created when you invest consistently and your investments grows with time. It is like a tree which keeps growing exponentially. Here understanding the power of compounding is very important. All of us read about compound interest in our schools. But did we really understand what is it and what power it has ? I think most of us don't understand, at least when we start earning. It is simple. If we consider that an investment gives you a return of around 15 percent (it is possible and easily achievable), it will double in about 5 years. So if you start investing when you are 25 yrs of age, (ie when you get your first pay cheque), here is how it goes -

Power of compounding 

Suppose you invest Rs 1 Lakh (Indian rupees) in any instrument of your choice when you are 25 yrs old, it doubles in 5 yrs (considering an interest rate of 15%), your investment grows as follows !
      after 5 yrs -   2 lakhs
      after 10 yrs - 4 lakhs
      after 15 yrs - 8 lakhs
      after 20 yrs - 16 lakhs (1.6 million)
      after 25 yrs - 32 lakhs (3.2 million)
      after 30 yrs - 64 lakhs (6.4 million)
      after 35 yrs - 1.28 Crore
You will have this amount at the end of 35 years if you do not invest anything else and just keep sitting on the one lakh invested in the first year. If you invest regularly then sky is the limit. Investing is that easy. Unbelievable ? Yes it must be ! but that's true !


Grow your money with the power of compounding
Grow your money over time with the power of compounding and be a millionaire (Crorepati)

      If you keep investing monthly or yearly, it keeps growing, and sky is the limit.
You can see how time works wonders. In the first 5 yrs, the growth is only one lakh. But after 30 yrs, the amount grows by an astonishing 64 lakhs ! So there is a huge difference between someone who starts investing at the age of 25 and someone who decides to do so at the age of 35 yrs. If you start late, you lose the time leveraging benefit and hence you lose the quantum of increase that you are likely to get if you start early.

So it is important to start early with whatever small amount you have. Later on when you look back, you will be a happy man !

Know more 

Many compounding calculators are available online and you can use them to calculate the returns that you will get with a particular amount invested or recurring investments. Investopedia is one such site that provides details on investment matters. Paisabazar is another site which provides online calculator and provides an illustrative account of growth of money with time. Securities and exchanges board of India (SEBI) also offers compounding calculators to help common investors understand compounding and growth of money. Almost all mutual funds and brokerage sites offer online calculators. You can also learn from wikipedia about the power of compound interest. 

Disclaimer 

The author is not a professional investment consultant. Above article should not be considered as investment advice but rather a general investment education. The author does not intend to advertise or promote any business, website or company. All examples are given for the benefit of the reader.



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