Want a crore? Kaun banega ‘crorepati?’

Kaun Banega Crorepati? Well this is what Amitabh Bachan asked you for a whole year! Of course everybody realized that the Indian is now wanting to be more than a crorepati.

So the stakes in the game shows increased from Rs.  – 1 to 5 to 10 crores!

Frankly unless you are already a crorepati, who doesn’t want to be a crorepati? If you are now near retirement – and your memory can go back 40+ years, lakhpati was a big word! Of course in India we skipped the millionaire – 10 lakhs. We do not have a catchy word for a million. So the next step is ’10 millionaire’ or a “Crorepati”. Being able to call yourself a crorepati has been a milestone for many. It has a nice ring to it and generally implies that you’ve achieved a financial goal. While this may all be true, being a crorepati doesn’t go as far as it used to. Also if you have been lucky to buy (or inherit) a house in some part of Mumbai or New Delhi your journey to being a crorepati is already covered!

Actually this article is not about tips in the equity market, it is all about inflation! Being a crorepati 20 years ago is nowhere near the same thing as being a crorepati today, just as being one today will be nothing like being one 20 years from now. Because of inflation, everything increases in cost over time—milk, bread, cars, houses, automobiles, schools and even salaries. A decent CA started on a salary of Rs. 2500 p.m. in 1986. Today when our office makes offers of Rs. 500,000 a year, we need to keep our fingers crossed. And we are not talking about rankers!

If you’re old enough to think back 20 or 30 years ago, think about how much a litre of petrol cost, how much you paid for your first car or house, or even what your starting salary was. If you look at those numbers in today’s rupees, it seems like things cost next to nothing back then. The same holds true today, and 30 years from now when you look back to 2008 it will be the same.

Consider this—if you had Rs.1,00,00,000 sitting in the bank today and inflation continued along at the average 6% rate for 30 years, by then your Rs.1,00,00,000 would essentially only be worth Rs.20,00,000. So, in order to have the equivalent of a ‘crore (rupees)’ 30 years from now, you’d actually have to have over 5 crores in the bank today.

This is a wake up call, especially for younger people. First, it shows how much of an impact inflation has on your money over long periods of time. With people living longer than ever before, this could mean 30+ years of retirement where this money has to last and provide income. With inflation eroding the value of your rupee, you need to make sure there is enough saved to outdo the effect of inflation and taxes.

Second, it shows just how important it is to earn enough (interest, dividends or capital growth) on your investments (savings) to counteract inflation. If your money is sitting in a bank account earning 3% interest while inflation is at 8%, you are bleeding. Even assuming you are in RBI bonds or Bank FD and earning 8% p.a. – at best you’re breaking even. But what is more likely is that you’re actually losing money because of income taxes that you’re paying.

So remember, becoming a crorepati is a great net worth goal to set, but if you are planning for the next 30 to 60 years, that “crore” won’t go very far!

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