“I want to get rich.”
I turned around to face Ankit, my young cousin, who was visiting me.
“What do you mean?” I asked.
“I want to see myself with a networth of a few crores.” He said flashing the latest issue of the magazine that has the list of the country’s Richest.
“How should I do it?” he followed up.
“How many crores do you want?” I decided to have some fun.
“Many. 5, 10, 25, even more.”
I was taken aback with the pace of the discussion. Before giving a response, I took a deep breath.
“Ok. Let’s take the easiest option first.
You can buy a lottery.”
“Lottery! Bhai, stop kidding!”
“Good to hear that. It means that you are not out there to make a fast buck.”
“OK. Let’s see if the next one applies to you. Do you have a rich uncle or aunt who would leave you an enormous inheritance, may be some distant relative?”
“Are you serious?” Ankit asked frustratingly.
“Yes, this happens. Haven’t you seen movies? In fact, in real life too. I have heard of a caretaker of a rich parsi gentleman. The rich man had no children and left the entire wealth to this caretaker who had nursed him to his last breath.”
By this time, Ankit realised I was trying to pull his leg. He too was on it.
“No. But I wish I had one.” He said with a grin.
“Let’s forget this one too.” I waved my hand in the air in a negative.
“Bhai, I am serious! I really want to know.”
“OK. OK. Let’s get serious.”
After some thought, I suggested, “Why don’t you do a startup? More and more people are starting up themselves or working with other startups. Startups, when solving the right problem for a large enough customer base, produce significant value.”
“Yes, that’s a possibility. In fact, there are many examples today including founders of Flipkart, Freshdesk, etc.” Ankit added.
“That’s right. If you have a great idea that solves the real problems of people, this one could literally be the smartest way to get rich and pump your networth by a few crores.”
“Well, I don’t have an idea for now. But it definitely is something I will pursue. I will have to think about it.”
“Sure. You should.”
“But what till then? I mean I can go and work at a startup maybe. I will get a decent package too. But is that going to be enough? What else should I do?”
“Very good. I am happy you realise it is not enough. That’s where the next thing comes into picture. You need to deploy your saving into sensible investments. An early start with decent savings and channelising those savings into right investments can create a solid engine for growth of your wealth and networth.”
“Tell me more.” the curiosity levels were super high.
“You are just 25 and you have already got this job paying you 5 lac a year. Make a start now with your investments. However, first make note of one rule. SAVE FIRST, SPEND LATER.”
“OK. You mean I should first set aside money for investments and then spend from the remainder.”
“Yes, that’s right.”
“That’s interesting and counterintuitive too. Most people would save from what they are left after spending.”
“Yes again. Let me show you how does it help.” I opened an Excel spreadsheet and quickly did the numbers for Ankit.
“So, your current salary is 5 lacs a year. And you are age 25.
Let’s assume that you save 50% of your salary every year. Also that your income will grow at a decent average rate of about 10 to 12% every year.
With those numbers, here’s how your networth is likely to pan out. We will only look at the big milestones of 1, 5, 10 and 25 crores.”
I turned the screen with the spreadsheet table towards him.
Age (years) to achieve networth
“Wow! That’s insane.” In a few minutes though, the smart guy made a sensible observation.
“Assuming I take the middle path of a balanced mix of investments, the first crore in networth comes by age 36 or 37. The 5 crore figure happens by age of around 46. By age 51, I reach 10 crores. And the extra crores in networth come in at a faster rate.”
“Yes, that’s right. In fact, you reach Rs. 25 crores of networth in just another 7 years of reaching 10 crores.”
“Awesome! How does this magic happen?”
It was time to give him the lesson.
“I hope you realise that the power of unhindered compounding is at work here. Over the years, your investments accumulate and drive the growth engine. Look at this table.”
Savings contribution to NetWorth
“Over time, the additional savings have a lesser role to play in growing your networth from one milestone to another. When you move from 10 to 25 crores, the contribution of additional savings is only 16%.”
“Awesome. So this means that I benefit when I make more savings now than later as they contribute more to the networth in later years.”
“Brilliant! You have got the absolute gist of it.”
“There is one more thing that you should look at.”
“I know you have already realised it but this picture would help you understand much better. The initial years of the investing journey are very dull and boring. You will slog it out at work but still wouldn’t see a significant change. See the flat lines till the early forties of your age. But over time, the magic starts to happen. See how these lines move up subsequently.”
I pointed to the chart where the curve made an upward tick.
“I see! Now, if I stick around till 70 or so, my networth can reach a 100 crores. OMG! That’s super.” His excitement new no bound.
“Yeah, the dedication, focus and discipline ultimately pays off. Compounding needs its time and your patience to work. As you would have also noticed in the very first table, while a 8 or 10 or 12% return does matter, the time has a larger role to play then just a percentage point here or there.”
“Thanks Bhai! I think I can now make it to the rich list too.” He smiled ear to ear.
“I am sure you will. Here’s another perspective for you.” I continued after a pause.
“A few crores by themselves mean nothing. Ultimately, money has to serve a purpose, for you. Even if you slog all the way to accumulate the 25 crores or 100 crores, what will you do with it? What is the purpose? Think about it.”
“Sure, I will. I need to also discuss where to invest.”
“Yes of course. That will be the next important step. For now, let’s have dinner.”
Between you and me: What’s your plan to get rich?