Money is the fun thing – it gives you the power and ease to have fun and live a better life. And making money is different from building wealth. Building wealth is like a road trip. While wealth is your goal, your investments are your vehicle to get you to your goal.
One thing I missed to tell you –how to make money– in my last post about 3 Important Levers to Stay Productive, Healthy and have better relationships.
Let me talk straight about an idea that gives you stupendous Rs. 14,97,842 by just stepping up your investments by Rs. 2,000. This is the real magic.
It is said that if you are saving money, you’re wise. You’re wiser if you are investing money to build wealth. But do you know what it takes to be the WISEST of all?
Today, I am going to talk about the power of compounding and how can you build humongous wealth by stepping up your investments –sometimes.
All you need to make small but disciplined investing.
Let me explain. Building wealth is like a road trip. While wealth is your goal, your investments are your vehicle to get you to your goal. But to reach your goal comfortably, you’ll have to make a few pit stops. These pit stops are important to fuel your growth. They help you overcome this massive road block called ‘inflation’, and ensure that your vehicle is well-maintained to get you swiftly to your goal.
What are these pit stops?
By pit stops – I mean ‘stepping up your investment’. Lets say that you make investment in SIP (Systematic Investment Plans) or make lump sum investment every year into mutual funds. But to accumulate wealth, you need to increase your investment year on year, if you really want to build wealth.
An Example on How to Make Money out of Your Investment
Let’s say you’re investing Rs. 10,000 through SIPs every month in mutual funds. And you want to reach your investment goals in ten years. Assuming a moderate rate of return of 12 per cent per annum, your investment vehicle would accumulate Rs. 23,23,391 at the end of your journey.
Here the magic comes:
Let’s say you stepped up you investment by Rs. 2000 per month every year. Rs. 2000 per month is not a big deal right when you are investing Rs. 10,000 per month. You would have received appraisal and increments, annual bonus, performance incentives etc.. So Rs. 2,000 is quite affordable, right?
Now, by increasing Rs. 2,000, your investment vehicle would have accumulated a whopping Rs. 38,21,233 for you at the end of your journey. What else you would have longed for by that extra Rs. 2,000
A step-up to your investments by just Rs. 2,000 every year steps-up your earnings by a stupendous Rs. 14,97,842. If this does not motivate you to make investments and stepping them up, nothing will do.
If you really want to build wealth and live a stress free life, follow the rules of making money.
Rule of making money: increase your investments as your income increases. With increasing income, your lifestyle improves and it becomes more important to create a back up for your increased lifestyle.
A periodic increase in your SIP amount will see to it that you don’t compromise on your wealth. Such stepping-up will also ensure you’re keeping pace with inflation, while building a healthy corpus for your goal.
This increment can be annual, or even half-yearly. You needn’t look for fresh schemes to invest in every time you step up your SIP either. Simply allocate them proportionately to your existing funds and rest easy.
So it is important to start small, start early and start now. Save first, and then spend from the remains. And trust me saving does not necessarily cuts your expenses. It just gives you the opportunity to produce more and spend wisely.
Save today – increase it next year – and increase it next year… You’ll have so much money that you can’t imagine now.
Investing regularly is the only habit that can make you rich.
PS: If you’ve not subscribed to my blog posts yet, please enter your best email address below and subscribe to it. I’m going to run a series of investment tips for financially bankrupts like us — salaried employees. If you’re into our league, this is gonna give you a better way to get rid of your credit card bills.