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How to become a millionaire
Gauruv Mashruwala, Moneycontrol.com
 
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October 09, 2006 14:23 IST

Warren Buffet bought his first stock in the year 1941 when he was 11 years old. In 1943, at an age of 13 he told a family friend that by the time he is 30 he would become a millionaire. 

If you are aspiring to become a millionaire then start as early as possible.  Even if you do not want to become millionaire but wish to create substantial wealth for you to lead financially free life then start as early as possible.

Most of us start earning in our 20s. That first pay in hand gives us tremendous feeling of power - we feel like buying the whole world with it.  All our life - till we start earning - we are dependent on our parents for our expenses. Suddenly we have money, which is our own. We can do whatever we feel like.

At this time in life we face biggest dilemma. Do we use that power to create wealth for us to use at a later date or do we splurge now. Our decision will decide when and how much wealth we will create. Better option is to save and invest entire earnings. Opposite of that is splurging away the entire pay. There can also be a compromise between the two options.

Required corpus

 Rs 10,000,000

Rate of return

8%

 

 

No. of years to reach corpus

Monthly Saving

40

Rs 2,864.50

30

Rs 6,709.79

20

Rs 16,977.34

10

Rs 54,660.93

If we want Rs 100,00,000 (One Crore) at age 60 and if we are 20 years old now, than we will have to save Rs 2864.50 every month. If we delay our savings by 10 years and start at age 30 than to reach Rs 100,00,000 (one crore) by the time we are 60 we will need to save Rs 6709.79 every month. By delaying the investment by 10 years, we will need more than double the amount reach corpus. Therefore start as early as possible. (Also read - Plan your retirement in 3 simple steps)

Another reason to start investing in 20s & 30s is that our financial responsibilities in these years are least. In all probability in 20s we are single and staying with our parents. There is hardly any household expense burden on us.

Even after we get married in late 20s, we are just two of us. If both spouses are earning than income of one of them can be easily saved. By the time we reach mid thirties, expenses related to children will start coming up.

In late 40s it is higher education of children and our parental responsibilities. Soon you will be in 50s and decade away from retirement.

Once you cross mid to late thirties you will have lots of regular and one time expenses. While earnings go up as we climb the career ladder, expenses also keep catching up.

Lastly, while we are in 20s and 30s we have age on our side and hence we can take higher risk to generate higher returns. Also because there is long working life left, we will get benefit of compounding.

Many of us may be investing for the first time in our 20s. For first timers and investors who do not have time and skills to manage their own investment, mutual fund is the best investment vehicle. Mutual fund gives benefit of professional management, small investment amount, diversification and ease of operation. (Also read - How to profit from Mutual Funds?)

Based on our financial goals we can choose debt or equity based investment. Also remember individuals who create wealth are not ad hoc investors. These are people who invest in a disciplined manner over a prolonged period of time. Mutual Fund, through its Systematic Investment Plan, makes discipline investing easy.

20s and 30s are our golden savings years. If we sow seeds of wealth in 20s & 30s we will create huge tree of wealth.

By the way Warren Buffet made his first million in 1961 when he was 30/31 years old.

The author is a Certified Financial Planner. He may be reached at gmashruwala@gmail.com

For more on mutual funds, log on to www.easymf.com

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