Dream Big. That's what the great Dhirubhai Ambani used to say. I admire and believe in that great personality completely. That's why I have a big dream to become a crorepati. And I am sure, you too must be nursing the same anbition.
Ok. Now that you and I have a dream we better get up and start working towards it. We have to figure out the shortest and the surest way to become a crorepati.
A few ways, of course, are:
- Winning a lottery
- Winning the KBC show
- Getting it in inheritance
- Saving and investing with a plan that can get you there
Unless I am really lucky or extra-ordinarily talented my chances of becoming rich are slim by the first three ways. The fourth way seems to me like something that we can do to achieve our goal.
But before you try to understand how you can practically go about becoming a crorepati lets look at a formula that is the base of all wealth creation in the world.
FV = PV (1 + R)n
FV = Future value of your investment/s
PV = Present value of your investment/s
R = Rate of return on your investment/s
N = Number of years for which you would want to invest
Sounds like Greek?
Well, becoming a crorepti is never very easy.
But what this formula says is that whatever amount you desire in the future (Future Value, FV; in my case its Rs one crore) is equal to the amount you can save today (present value, PV) multiplied by 1 plus the rate of return (R) and multiply this 1 plus R for number of years you want to keep investing.
Puzzled by this formula?
What it signifies is that your future value depends on three factors:
- Present value or the amount you can invest regularly
- Rate of return: The amount of interest you would earn on your investment/s
- Number of years you can invest
Let's take an example of two of my friends, Prakash and Anu, who also share my dream and are already on their way to become crorepatis. But there is a difference.
Both of them are of the same age and started investing from the age of 25. Anu invested Rs 5,000 a month for 10 years. That means a total amount of Rs 600,000.
At the same time Prakash started investing from the age of 35; he also invested Rs 5,000 per month for the next 25 years till he reached 60. This translates into a total amount of Rs 15,00,000. Now take a guess as to who would earn more money.
Yes, you are right. It is Anu who would make more money. And if you hear the figures that they both will earn would leave you astonished.
Anu would earn a cool Rs 4.6 crore by the time she turns 60 if her investment grows at a steady rate of 15 per cent every year and Prakash would have earned Rs 1.5 crore at the age of 60 if he earned at the same rate of return. It has cost Prakash Rs 3.1 crore as he invested ten years later than Anu.
This example, in a way, also signifies the importance of time in investment planning.
Some numbers to ponder upon:
- Rs 1,000 invested per month at the rate of 15 per cent per annum would translate into approximately Rs one crore after 33 years
-
Rs 5,000 invested per month at the rate of 15 per cent per annum would translate into approximately Rs one crore after 22 years
-
Rs 10,000 invested per month at the rate of 15 per cent per annum would translate into approximately Rs one crore after 18 years
-
Rs 15,000 invested per month at the rate of 15 per cent per annum would translate into approximately Rs one crore after 15 years
Don't this numbers look incredible! But mind you they are true. Now you would say you know that but you can't really save that much every month? There is still hope.
I believe most of us reading this article can save at least Rs 833 per month or Rs 10,000 per year. This would take time but with the amount you can save you will have to be more patient. And you will have to save up to the age of 60.
Look at the table given below and you can see the potential you have:
|
Age (years) |
Amount invested (Rs) |
Amount (in Rs) at 60 |
|
25 |
350,000 |
1.01 crore |
|
27 |
330,000 |
76.43 lakh |
|
30 |
300,000 |
49.99 lakh |
At 15 per cent per annum all these things can work for you provided you are disciplined and patient with your investment approach. We all can become crorepati's.
PS: If you are wondering what investments on earth gave you returns more than 15 per cent a year for the past 10 years then here's the answer: The Sensex in the the last 20 years has given an annual return of 18 per cent consistently; some top-performing mutual funds have also given returns of 31 per cent per annum in the last 10 years.
If you believe in this historical data then you know where to put your money if you want to become a crorepati.
