Eat less and exercise more, that is the mantra 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 (read retirement) 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 is compounding
the eighth wonder of the world? Here is an example.
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.
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.
If you equate the same to a
larger amount of Rs 1 lakh in approximately 7 years, it would grow to 2 lakh.
Remember you will be consistently saving up too, topping up existing funds.
Fortune favors the early bird!
Compounding interest is like wine, yields
better results when money is saved over longer durations. So, if you are
planning to save crores for your retirement funds, then start as early as
possible, with your first salary or at least by 25 years of age.
If you set aside a sum of say Rs 5,000 every
month from the age of 25, at a return interest rate of 10%, in 60 years
you will have with you funds worth about a crore and more
Let us assume the
individual plans to invest Rs 10,000, every year at a return interest rate of
10%. You will realize from the chart that starting early counts a lot!
Age at which investment
begins
|
Retirement fund
|
20
|
49 lakh
|
25
|
30 lakh
|
30
|
18 lakh
|
35
|
11 lakh
|
40
|
6 lakh
|
You will notice from the above comparison,
that even a matter of five years can make a huge dent on how much you retire
with.
Start saving, it’s never late.
Bye J
"hence, if you are planning to retire 60 years from the time of the investment, it will approximately snowball to about 6 times from its original value"
ReplyDeleteIt will actually be approx 300 times in 60 years. Based on compound interest, the money will be 6 times in approx 20 years.
in year 7.2 the amount becomes 2 lac, in year 14 it becomes 4 lacs and in year 22 it becomes 8 lacs which is 8 times in 22years...