POWER OF SAVINGS

A salary is most often associated with making your ends meet. Viewed as such, it may appear to be a contradiction. But stop to take a look at what is the worth of your salary stream over your remaining working life.

Consider a monthly salary of Rs 10,000 per month just for the ease of dealing with a round number. Over a 30-year period this salary will mean a total earning of Rs.36 lacs.

Right?

Now, if the entire salary could be invested at 10% per annum rate of return at the end of every month during this period, this would mean Rs 2 Crores 23 Lacs 70 thousands at the end of 30 years. This is hypothetical. Nobody can save his entire earning. But this is a fact.

Now, refer to the following table to find out results for different periods and at different rates of return, so that you can consider the results closest to your own case:



Surely, there are interest rate uncertainties over a long period. However, the above data give us an idea about the SIZE OF YOUR SALARY CAKE for the rest of your working life.
Creating a fortune would, therefore, have to begin with just holding on to the BIGGEST POSSIBLE SLICE out of this SALARY CAKE.

For example, a person, holding on to only 10% of his salary of Rs 10,000 per month for 25 years, will have managed to create Rs 11.21 lacs at 9% per annum, a sum relatively immense at today's prices for somebody earning only Rs 1.20 lacs per annum.

This is incredible! But this is true at every salary level and at any rate of return.
Salary earners get known amount of earning at known dates. House and consumer durable purchases are financed through EMIs (equated monthly installments) of loans by utilizing this known income stream to make these purchases affordable. How we miss the logic that if the same power of salary is used to build wealth and there is no interest to pay for, the result cannot be short of a miracle.

As the definition of FORTUNE is very personal, so will the amount, that can be set aside month-to-month, vary from person to person. But the basic principle remains intact. That holding on to the biggest slice out of your earnings cake will be the first and most important step to creating a fortune for you.

Regular savings are widely known to be an important creator of your wealth. What these numbers underline is that in order to hold on to the biggest slice over the long run, we must keep an eagle’s eye on various ways in which we lose or ignore apparently small sums of money from time to time, which may add up to large erosions over a lifetime.
Creating a fortune is, however, an active process. It involves, among others, a precise understanding of the dynamics of a number of variables, a disciplined approach, being aware of psychological pitfalls in your decision-making when related to your money, sustained implementation of well thought-out plans, and regular periodic reviews.
However, keeping a hawk eye on your regular savings and various small leaks can be the most rewarding beginning.