One of the hazards with my job is that wherever I go I am always on my job. My wife often gets annoyed with me as even in social gathering, I am talking to people something related to my job. And you know what people keep asking me more often in social gathering or otherwise:
1. Where do you think markets are headed?
2. Which is the best mutual fund now days?
3. Can you give us some HOT TIP so that I can double my money in next 6 months?
And when I tell them honestly that I do not know such thing, either they think that I am just stupid who does not know his job or I am not interested in sharing the same to them without fees.
All these questions are asked as people just do not follow the secret rule of creating wealth. The easiest way to become rich is “START EARLY” and let the POWER OF COMPOUNDING work for you.
Secret of Wealth Creation
I did some calculations with 15% return on investments and came up with some astonishing facts and figures. Let’s assume I am touching the age of 30 and I have decided to plan for my retirement at 60. I shall invest Rs.5000 per month in an investment which should give me 15% p.a. return.
Following are some options that I am considering.
1 Invest Rs 5000/- per month and keep investing for next 30 years. Total Investment will be Rs.18,00,000/-
2 Invest Rs.5000/- per month and keep investing for 20 years till the age of 50 but withdraw 10 years after the age of 60. Total Investment will be Rs.12,00,000/-
3 Invest Rs.5000/- per month and keep investing for 10 years till the age of 40 but withdraw 20 years after the age of 60. Total Investment will be Rs.6,00,000/-
Since the total investment in the Option 2 and Option 3 is 2/3rd and 1/3rd respectively of Option 1, the corpus should also be significantly lower. Let’s check it out.
You see the difference in the end corpus does not vary in the same proportion when compared to the investment amount.
Let me explain my point with a different example. I need Rs.2 crore at the time I retire at the age of 60. Now I have again three options.
1. Invest for full 30 years starting from the age of 30
2. Invest for next 20 years and leave the money for next 10
3. Invest for next 10 years and leave the money for next 20
In this case, the gap between option 1 and 3 should be huge. Let’s check it out..
The above two examples just explain us that the KEY TO WEALTH CREATION IS STARTING EARLY.
Let’s take another example which is other way round. This time, I have three options
1. Invest Rs.5000/- per month from the age of 30 for next 30 years.
2. Invest Rs.10000/- per month from the age of 40 for next 20 years.
3. Invest Rs.30000/- per month from the age of 50 for next 10 years.
You know what will be my retirement corpus at age 60?
What if I need Rs.2 crore at the time of my retirement and I again have 3 options
1. Start investing at the age of 30 – The monthly investment will be Rs.3551/- and total investment will be Rs.12,78,461/-
2. Start investing at the age of 40 – The monthly investment will be Rs.15071/- and total investment will be Rs.36,16,981/-
3. Start investing at the age of 50 – The monthly investment will be Rs.76,040/- and total investment will be Rs.91,24,844/-