In India, a lot of people aspire to become a ‘crorepati’, but very few people have an actual plan on how to be a crorepati.
Do you ever drive a car without knowing the destination and the time needed to reach there?
Even if it’s a short trip – you do plan, right?
Financial planning is also very important, as its money which provides you food, shelter and other essentials required for a living.
Without planning your finances, it’s very difficult to have savings.
Many who have lost jobs or business due to COVID-19, have now started realising the importance of saving money.
Back to the topic: The first step is to have a realistic plan and then give yourself time to execute it.
If you earn 50,000 a month and spend the entire amount – your actual earning is zero. Only the money saved is your real earning.
A person who earns 20,000 and saves 5,000 every month, will eventually become richer than a person who spends everything.
These days, things are getting worse. People are now spending more than they earn. This is mainly due to easy access to no-cost EMI, credit cards and personal loans.
Example: Let’s say your salary is ₹ 50,000. Out of this, you need to be able to keep aside ₹ 10,000 every month.
Saving More when your Salary Increases
If the first step was to save, the second step is to increase the percentage of saving when your salary increases.
Let’s take an example:
Notice how the percentage of savings has increased from 20% in 2020, to 25% in 2022. Even though your expenses have increased, you are saving more!
The earlier you start doing this, the better. Expenses can be kept in control when you do not have a family – which is before the age of 30.
Unfortunately, it’s during this time that youngsters tend to excessively spend on expensive smartphones, gadgets and other non-essential stuff.
Avoid this. Energy levels and brain functioning is at its peak in your 20s. Focus on increasing your earning, skills and save enough money. This will reduce your money-related stress when your responsibilities increase quite significantly after the age of 30.
More income = Lesser time to accumulate money.
Investing your Money
Some of the most educated people are clueless about investing.
Many do not understand what a mutual fund is, yet invest their money into it.
Others think mutual funds are risky, and prefer depositing their savings in a fixed deposit – which gives returns less than inflation after deducting taxes.
Even if it is possible, it would take a really long time.
Let’s say you have 10 lakhs today and want to convert it to 1 crore.
The table below has some of the various investment options and the time it would take to 10x (10 times) your money.
|3%||Savings Bank||78 years|
|5%||Short Term FD||47 years|
|6%||Fixed Deposit||40 years|
|7%||Public Provident Fund||34 years|
|10%||National Pension Scheme||24 years|
|12%||Real Estate||20 years|
|15%||Equity Mutual Funds||16 years|
|18%||Direct Stocks||14 years|
As you can clearly see, if you keep money in a savings bank account – even an entire lifetime is not enough to increase your money by 10 times.
At 5-6% interest rate, it’s possible. But it would take more than 40 years. If you are a 25 year old, your target will be achieved when you are 65-70 years old.
This is assuming interest rates remain the same. In a growing country like India, when the economy matures, the interest rates will gradually drop.
Also, what would be the value of 1 crore in 40 years from now?
The only real options left are Gold, Real Estate and Equity (Stocks).
Gold should be in the form of coins or slabs, without emotions attached to it. This can be considered an investment.
Real Estate investment should not include the house you live in.
Both of these cannot be sold if you need money. At least, it’s very difficult to sell. Hence, it cannot be included in your liquid savings.
The stock market has risks attached to it, but if the country prospers in the next 10-20 years, it should turn out to be the best performing asset class.
How to be Crorepati in 5 years
Is this possible?
Let’s assume a person has no savings at all, but wants to be a crorepati in 5 years.
How much would he / she need to save per month?
Sounds like a lot of money to save per month?
Well, a lot of people in metro cities earn more than 2 lakhs a month. Their lifestyle (expenses) does not allow them to save a lot of money, but if they are willing to sacrifice 5 years of their lives by savings aggressively, life can be a lot more comfortable in 5 years.
If you have savings of 1 crore and can generate 10% yearly returns, your ‘passive income’ is 10 lakhs.
The salary you earn is a bonus!
In 5 years, you can spend your entire salary and yet have savings – which keeps growing.
How to be Crorepati in 10 years
This is a lot easier.
If you start today, you need to save ₹ 36,335 per month to become a crorepati in 10 years – assuming you can grow your money by 15%.
For this, you either need to get into a good equity mutual fund or learn and invest directly in the stock market.
If 15% sounds like a lot, then at 12% you need to save ₹ 43,470 per month.
If you are a skilled investor and can generate 20% returns, then you need to save just ₹ 26,600 per month to become a crorepati in 10 years.
Of course, if you are skilled investor and can save more – you’ll end up creating a lot more wealth.
The point of this article is not to create greed for money within you. But to get you into the habit of savings.
It’s to tell you that in a short span of 5-10 years, you need not worry about money. And it’s possible just by cutting down on a few unnecessary expenses.
- You can then start pursuing things that are truly important in your life.
- You no longer have to fear about losing your job.
- You do not have to worry about emergency expenses.
- You can start your own business.
- You can do a job that actually interests you and not work just for salary.
- You can lead a less stressful life.
In short, you can do what is truly important – as money will no longer be the focus of your life.
A lot of people spend their entire lives working for money. Eventually realising that they cannot do much with money when time and health are no longer on their side.
Becoming financially free by the age of 40-45, will give you enough time to pursue things that truly matter to you. It could be a personal hobby, or a start-up business idea which you are passionate about.
Give these things a thought.
If you have any questions or suggestions, post them in the comments section below. I’ll be happy to answer them.
Disclaimer: The above article is just my opinion. Please consult your financial advisor before making any investment.