How to become a Crorepati with a normal income

06-Jul-2013 , 06:29:34 pm | By CASANSAAR print

Becoming a Crorepati with a normal income is possible, but it depends on three things:

The amount invested every month/year
Rate of returns
Time period the amount stays invested

A disciplined approach towards saving and sensible investing choices will take you to your first crore as long as you allow compounding to do its magic. If you were to save and invest Rs.50,000 per year (which is slightly more than Rs. 4,000 per month) you could become a crorepati in 25 years.

1. Amount invested every month/year

It's intuitive that the more you are able to save and invest today, the larger your reward will be down the road. However, this table shows that even the smallest addition to your savings each year can make a big difference in reaching your targeted amount.

Amount invested per year (Rs.) (assumed rate of returns at 12%)	Total investment (Rs.)	Value after 25 years (Rs.)
10,000	3,00,000	29,41,000
11,000	3,30,00	32,35,000
15,000	4,50,000	44,12,000
25,000	7,50,000	73,53,000
50,000	15,00,000	1,47,00,000
100,000	30,00,000	2,94,00,000

2. Rate of return

The rate of return (the amount you earn on your savings) has a huge impact on the amount of money you'll end up with. Different investment vehicles have different expected returns. For example, Indian stocks have historically returned more than 15 per cent per year. Cash, in contrast, has a current return of 8-9 per cent per year. Your goal is to find a rate of return that offers the highest potential for growth, but at the lowest possible potential for risk of loss. Over time, we have found that the most prudent solution is a diversified combination of investment assets (stocks, bonds, cash, real estate, and alternative investments).

Assuming that you could invest Rs. 100 at 11 per cent per year, you would have Rs. 1,359 at the end of 25 years. However, if you were able to invest Rs. 100 at 15 per cent per year, you would have Rs. 3,292 after 25 years.

Year	5% (in Rs.)	11% (in Rs.)	15% (in Rs.)
0	100	100	100
5	128	169	201
10	163	284	405
15	208	478	814
20	265	806	1,637
25	339	1,359	3,292
30	432	2,289	6,621
35	552	3,857	13,318
40	704	6,500	26,786
45	899	10,953	53,877
50	1147	18,456	1,08,366

3. Time period the amount stays invested

To illustrate the power of compounding over time, please refer to the tables below. In the first example, Rs. 2,000 was saved and invested each year from age 19 to 26 (for a total of eight contributions). In the second example, Rs. 2,000 was saved and invested each year from age 27 to 65 (for a total of 39 contributions). At age 65, the first example ended up with Rs.1,019,161 (vs. Rs. 805,185 in the second example), even though the total amount contributed over the eight-year period was only Rs.16,000. The reason? The first example had eight more critical years to invest at the same rate of return at the beginning of the investment period. That's the power of compounding!

	Example 1		Example 2
Age	Annual investment (in Rs.)	Year-end value (in Rs.)	Annual investment (in Rs.)	Year-end value (in Rs.)
19	2,000	2,200	0	0
20	2,000	4,620	0	0
21	2,000	7,282	0	0
22	2,000	10,210	0	0
23	2,000	13,431	0	0
24	2,000	16,974	0	0
25	2,000	20,872	0	0
26	2,000	25,159	0	0
27	0	27,675	2,000	2,200
28	0	30,442	2,000	4,620
29	0	33,487	2,000	7,282
30	0	36,835	2,000	10,210
35	0	59,324	2,000	29,875
40	0	95,541	2,000	61,545
45	0	153,870	2,000	112,550
50	0	247,809	2,000	194,694
55	0	399,100	2,000	326,988
60	0	642,754	2,000	540,049
65	0	1,035,161	2,000	883,185
Minus amount invested		16,000		78,000
Total		1,019,161		805,185
How much the amount has increased by		64 times		10 times