this is reposted because i have written a sequel to this…and that will appear in a couple of days…

When a young enthusiastic kid (she reads the blog and finds it embarrassing if her name is used!)  came up to me and said ‘Sir, if I have Rs. 10 crores in my life, I will feel rich’ to me it was a signal of poor understanding of compounding! One needs to know the impact of having Rs. 10 crores today and the impact of having it 30 years later!

Let me explain. This kid is 23 years of age has a nice degree in finance and a good career waiting ahead of her. She will inherit a little money from her parents, a house in Mumbai (say current price of Rs. 1 crore), marry a similar profile guy and start life reasonably well. This is perhaps the second generation that is starting with the parents providing a head start instead of asking for support in their old age.

So with no ‘pay back’ that they have to do, they can aggressively invest. Assuming that the house appreciates by 10% per annum (guessing) the value of her house will go from Rs. 1 crore to about Rs. 32 crores by the time she is 59 years of age.

Let us assume she does a SIP in an equity fund and her investments look like this:

Periodicity of payments:
Starting Age Retirement Age

 Start Age End Age Years Amount Interest Rate

She has not saved a dime till now, but assuming that she starts a SIP of Rs. 10,000 a month slowly taking it up to Rs. 100,000 a month by the time she is 54 years of age, and assuming the interest rates mentioned in the table, this will also accumulate about Rs. 10.25 crores-this on an investment of Rs. 1.35 crores!

That is the power of compounding.

Will she be able to make these investments? It looks like a breeze. There will be a time in life when she will take a break for having and bringing up children, but I am assuming that her husband’s investing will more than make up for the gap. Her husband will pay for all the household expenses and will also be able to invest some more money on his own.

This brings us to the question – What will be her salary when she is making these kind of SIPs?

Well she will earn about Rs. 4.5 L to start with, earn about Rs. 13L at the age of 35 years, earn about Rs. 25 lakhs at the age of 45 and will retire on a salary in excess of Rs. 45 lakhs. All these are per annum rates, so post tax SIPs ranging from Rs. 10,000 now to Rs. 100,000 around retirement time is surely affordable.

The conclusion is simple:
-she will have a net-worth in excess of Rs. 25 crores by the time she retires…and she will require more than that for her retired life.

COMMENTS:  She has read my book, she is smart and she is doing a SIP of Rs. 10,000. As long as the ‘men’ in her life do not interfere with her money management skills, and she does not fall to the conventional wisdom ‘buy real estate – God does not make it anymore’….she will have her Rs 50 crores, not just 10!

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1. anon

no asset balancing?
no debt/ money market/ gold etf?
what about soverign, po mis, rbi bonds?
after ups there are downs, no?
These interest rates are too good to last.

2. subra

asset balancing – yes she will not do if she has a 40 year game..she will do only at the 35th year…
no gold, no debt – correct
return rates are tough to last – i agree.

3. Suresh

congrats subra! 22 responses so far.Your blog has indeed found its target audience!

4. shrinivas

This calculation is based on too many assumptions.That she will work and invest through all those years,that she will not fall sick/have an accident (God forbid, let her be happy, safe and healthy all her life ! Let her lead a blessed life!), does not have a change of heart and start some business or get sick of investing and donate all her money to charity and live like a saint, etc.,
Yet, it is good to imagine that one day she will have 26 crores, yet that will not be enough !
Did you write this article to suggest that planning is quite useless ?

5. srinivasan m

Subra Sir,

Amazing sir, even 23 year old girls have learnt reading your book.
Feeling very depressed, I haven’t started early like this intellignent girl. Didn’t bother to read anything on finance at that age.(What a waste of compounding opportunity) But what I find is you only give us stories of girls reading your book and benefitting, do you feel guys not improving at all from your books ?? BTW Iam already 30 years..Just 6 months back started doing SIP’s in close to 24 equity MF schemes(small caps , midcaps, large caps, bank, pharma , what not ? )… LOL..After reading your blog brought it down to some 10 schemes with great difficulty …LOL….

6. subra

not sure whether guys will improve. NOT found any kid below 25, male, who has given me a feedback. One girl who has read it is the one about whom I have written the ‘if I have 10 crores’ story…

boys have their own explanation – they say they spend it on the same girls!!!

7. Sambaran Mitra

May be the girls are merely trying to be nice with you. Girls generally do that.
On a more serious note, I liked a book called “Penguin guide to personal finance” by Ashu Dutt. My personal finance awareness started with that book. It was published somewhere around 1998. Unfortunately it went out of print.

8. subra

i have the book reviews with me…5 of them 🙂 which means they have read it. I have seen SIP statements..that cannot come out of thin air. However my base is too small to make such a broad statement.

9. rajivahuja

She is one smart girl. When I was her age my financial literacy was pretty bad,

10. subra

Not so fast Rajiv. I could write a big note on her financial glitches too 🙂 One example? She has filed her IT return where she has FORGOTTEN TO CLAIM 80C deduction…

To make money, sadly, you have to get a lot of things right. Keeping all the money in cash and letting the door open for the thief to take it away..will still leave you poor 🙂

11. NM

Subra,

I started my personal finance journey , at the age of 22, 2 months after I started my first job. I can share my details and send you a draft story if needed. You might find it interesting reading. It tracks a novice through the boom period of 2004-2007 , crash of 2008 and recovery of 2009:).

12. subra

sure Nishanth would love to see a GUY who started early – most of my stories are of girls starting early…!

13. rajivahuja

You are right that as long as the men in her life don’t interfere she will do fine

14. Praj

Hi Subra,

Thanks for sharing your experience and expertise in the world of personal finance thru your blog and articles.

I am a 26 year old male. I got a job in a MNC IT company at he age of 22 in 2007 and started investing a part of my salary n pure equity mutual funds via SIP since the end of 2007.

Initially, the funds were selected for me by my dad’s acquaintance who is also a financial advisor but now I do that on my own. But thankfuly, all but one of the funds that he selected for me have done well. They have given me 30% returns on an average till date which sure as hell beats the returns of PPF and FDs that all my friends have been preaching so piously during our tea breaks.

Over the last 2 years, I have increased the monthly outgo towards SIP to 10000 and intend to increase it further depending on the salary revisions.

So, I hope I am able to accumulate enough to have a decent retirement corpus.

Also, I am lucky enough to have a great advisor who has advised most of the things suggested on this blog. Also, he is the only insurance agent who has urged me to buy a term plan.

Regards,
Praj

15. rajivahuja

@ Praj-I feel happy for you. I bet you do too that that you started saving & invested early.

16. Geo thomas

Subra sir, the numbers and calculation is very dangerous, I fear it, I am 41 and when I was 25 no one was there to guide me ,at the age of 34 I started investing in sip with 3000 and now it is 33000, one thing I am sure I will create wealth.I only read good article like your post and ur post keep me informed which in turn I educate the young one to start early and the importance of investments not saving. Thank you subra sir.