18/03/2018
Assume a young 24-year old, has just started earning. His job pays him Rs.20, 000/- per month after all taxes. He is a lavish spender and spends all the money he earns. Looking at his lifestyle a good friend of his advices him to save some money for the future.
Not wanting to save much, reluctantly he decides to set aside just Rs.75/- per day for his future needs. Further, considering his good friend’s advice, he decides to save Rs.75/- every day for the next 20 years.
They decide that the money is best invested in an equity mutual fund since historically a good equity mutual fund has generated a CAGR return of 15%.
Now here is my question to you – Can you take a guess how much Rs.75/- invested at 15% CAGR could grow to at the end of 20 years?
In fact, I asked this question to a colleague of mine and he made a simple calculation which goes like this –
“The guy saves Rs.75/- per day or Rs.2250/- per month. He invests for the next 20 years, which means he invests close to Rs.540, 000/- i.e. Rs.2250 per month x 12 months x 20 years. After considering the 15% return he simply declared “At the most his money would have grown to Rs.900, 000/- definitely not more than that.”
The reason I asked this question to my colleague was to observe how he would treat the 15% CAGR. He easily missed the point that the money is ‘compounding’ at the rate of 15%.
If you are wondering how much Rs.75/- per day would grow to when invested at 15% for the next 20 years, then hold your breath – it would grow to a whopping Rs.33,68,789/-!
Can you imagine that? At just Rs.75/- per day, which, by the way, is less than a movie ticket at a multiplex you can amass wealth close to Rs.34 lacs! How easy is that? This is what compounding does to your money, it starts growing beyond your regular imagination!
So dear friends, you have to believe in the power of compounding and start investing today, no matter how big or small. There are many of you who can afford to save more than Rs.75/- per day, so I would suggest you take the plunge towards long-term wealth creation today, after all, investing is not just good for you but for people dependent on you.
