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Friday, January 16, 2009

Start Early

The key to building wealth is to start investing early and regularly. Regular investments, however small, can grow into a substantial amount of wealth over the long-term. Most of us tend to delay investing till the last moment. But the longer the delay, the more you'll need to put away in order to reach your goal.

The Cost of Delaying

Sunita, Anil and Sunil begin their careers together at the age of 25 but have different attitudes towards savings. Sunita is a conservative spender and believes in saving. Anil and Sunil believe that with good careers ahead of them it does not really matter when they start saving.

Sunita. Sunita gets into the habit of saving regularly from day one. She successfully saves Rs.10,000 in the first year. She continues saving Rs.10,000 per year for 35 years till her retirement.

Anil. Anil gets married at the age of 27. With new responsibilities ahead of him, he gets into the habit of saving Rs.10,000 every year and continues saving Rs.10,000 per year for 33 years till his retirement.

Sunil. Sunil is the last one to start saving. He gets married and becomes a father at the age of 30. He, too, realises that he cannot delay his savings decision any more. He gets into the habit of saving Rs.10,000 every year and continues with this for 30 years till his retirement.

Sunita began at age 25 and saved Rs.350,000; Anil began at age 27 and saved Rs.330,000 and Sunil began at age 30 and saved Rs.300,000.

It seems quite obvious who saved more and who would have more wealth on their retirement. But consider this. If each of them got a compounded return of 15% per year on their savings, Sunita would have over Rs.1 Crore, Anil approximately Rs.75 lacs and Sunil approximately Rs.49 lacs.

It does matter when you start savings… the earlier the better!


source: Franklin Templeton

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