When you think of accumulating a large amount of money we trouble ourselves into believing that it takes a lot of money to create money. Well it is not so. It is simpler. In fact much simpler than that.
But those are the exact three words that can help you retire with Rs 40 a day. Let me show you exactly how. Say you can set aside Rs 40 every day for your retirement. Where do you get Rs 40 a day? Why not cut down on those cigarettes? Then, let’s see what could happen.
Let’s also make some assumptions (do allow for the fact that all may not be valid). Let’s also suppose that these are valid for the next 30 years.
Instrument Yield (%pa)
PPF 8
Sensex 18
Equity 21
Retirement Chart
Money saved per day Rs 40 Rs 80 Rs120
Money saved per year Rs 14,600 Rs 29,200 Rs 43,800
Money earned if invested over the next 30 years
Sensex Rs 11,547,841 Rs 23,095,681 Rs 34,643,522
Equity Rs 21,099,200 Rs 42,198,399 Rs 63,297,599
PPF Rs 16,53,935 Rs 33,07,870 Rs 49,61,805
Nice chunk of change, eh?! Doesn’t that make your retirement look so comfortable?
Of course, if you spend Rs 120 per day on cigarettes, you probably won’t live for 30 years! That still leaves your dependant spouse needing a retirement corpus!
Ah, now you are saying you don’t smoke? Maybe you’re a frequent restaurant-hopper? That would easily mean Rs 2,000 per week. Keep at it for 30 years and you would have said goodbye to Rs 15 crore.
Gastronome’s chart
Money spent per day Rs 750 Rs 1,500 Rs 2,000
Money spent per year Rs 39,000 Rs 78,000 Rs 104,000
Money earned if invested over the next 30 years
Sensex Rs 30,846,972 Rs 61,693,943 Rs 82,258,591
Equity Rs 56,360,876 Rs 112,721,752 Rs 150,295,669
PPF Rs 44,18,045 Rs 88,36,090 Rs 11,781,454
Don’t fit into the smoker or the gastronome’s category? But you have one weakness — you love shopping. Say, you spend about Rs 10,000 per month on retail therapy.
Hmm. Over 30 years, a Rs 10,000 investment in an equity fund could fetch you Rs 17 crore. I won’t even go into what you can do with that kind of money!
Money spent per day Rs 3,500 Rs 5,000 Rs 10,000
Money spent per year Rs 42,000 Rs 60,000 Rs 120,000
Money earned if invested over the next 30 years
Sensex Rs 33,219,816 Rs 47,456,879 Rs 94,913,759
Equity Rs 60,696,328 Rs 86,709,040 Rs 173,418,080
PPF Rs 47,57,895 Rs 67,96,993 Rs 13,593,985
Why do you think the otherwise smart, educated people fail to understand this? Allow me to tell you what I think.
Your life is a function of your habits, not common sense. It’s tough to change your habits. Consider this. Most smokers know the damage that 54,750 cigarettes can do to their health. But that ‘one’ cigarette never seems to matter. Ditto for that ‘just one’ cold drink or chocolate.
If you feel very deprived reading this – and think your retirement corpus can come only from sacrifices let me add there are some other things that you can do. Switching of all electrical appliances when not in use, not racing the car while waiting, using CFL lights instead of tube lights, giving your monitor a break, using a lesser horse power car, – this is not ‘depriving’ you of anything. Just make those small changes in life and your Rs. 40 would be there available to be invested. Now I hope you are not feeling deprived!
Why do people not do this? It used to stun me till I heard “It takes a complicated mind to think of simple things”. Here is my explanation for the current state of affairs:
Most people don’t care about small numbers and wait for that big amount to come by for them to save. Funny thing is, if I tell you saving (and investing) money is very simple and needs very simple methods to make large amounts of money, most people, including you would laugh at me. But it’s just so easy. Start small. Start simple. Save big! Then invest it. You do not need complicated tools such as day trading, brokerage accounts, futures and options, etc.
When you tell them that they can make a lot of money by just being disciplined they will just not believe it!
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