There once lived a man in ancient Babylon. He was the richest man in the city. His friends used to wonder how he became so rich while they stayed poor, having started out at the same place at the same time. They decided to ask him the secret of his riches. The richest man in Babylon then shared his big secrets with his friends. His first secret was a lesson he learnt at a very young age from a wealthy merchant.
He said, the merchant asked me how many coins are there in my pocket on pay day. I said ten. Then he asked, what remains at the end of the month. I said none. He told me to keep one coin in my pocket and live on the rest nine. I did so for a year. At the end of the year I realised I could live on nine coins and without any pain. I had managed to make my purse full of twelve coins, when earlier it used to be empty. That was my first lesson and I have not forgotten it as I learnt more lessons about money in my life.
The same story can work for you too. It pays to save and invest your money wisely as early as possible. Let us look at some simple numbers and how they can change your life for better. Say you are about in the 25-30 year age group. You are more likely to be at the beginning of your career. Earning cycles are at the lower end. It will be a few years before you will actually see higher income levels. So does that mean you wait till you can actually earn enough to have a so called decent surplus? Like in the story of the wealthiest man of Babylon, if you start saving even 10% of whatever you earn today, it will help you in the long run.
To validate my point Refer Table A. It shows how much money you can accumulate over a long period of time even by saving small amounts on a regular basis at a reasonable rate of return.
Now let us see what these numbers actually mean to you in life. Refer Table B. In 20 years, your child would be close to pursuing higher education. And for that you would require about a crore of rupees to fund his/her education which costs about Rs.15 lakhs today. If you can start saving Rs.10000 pm today, you can expect to achieve your goal in about 20 years. It might be difficult for some to save that amount per month currently. You can start with whatever amount is possible for you to save. You can later increase the amounts of investments as your income level grows. It will eventually add up. If you start saving Rs.1000 per month today and increase your savings amount by Rs.1000 every year for the next 20 years, you can have handsome corpus of Rs.68 lakhs if you earn a return of 12%p.a. Even at 8% rate of return, this strategy can yield about Rs.47 lakhs.
To inculcate the discipline of saving and investing regularly, you should look at automating your investments periodically. Else, things will never happen if every month you have to do paperwork,or manually go to someplace to invest your money. The best way to do this is to start SIPs(systematic investment plans) in mutual funds. Mutual funds are available in various flavours to suit your risk profile and investment horizons. They can be handy to save and invest both for long and short term goals in your life. Automating your investments in mutual funds and withdrawals from them can make your life easy and richer.Your disciplined approach towards investments is sure to give you a sense of fulfilment.
Kiran Telang
Practicing CFP and founder of ABT capital advisors (www.abtcapitaladvisors.com)
The Author is a member of The Financial Planners Guild India ( www.fpgindia.org), a non-profit organization, whose members are Practicing Financial Planners.
Disclaimer: The views expressed are personal and by writing this article the writer aims to help readers with money related decisions and recommendations.
