Friday, 12 July 2013

Why my batchmate should 'know' this money management secret?

Few days back, I was analyzing Ameriprise India’s second edition report - Trends and insights into the financial goals of Indian consumers. ‘140 per cent increase in respondents rating retirement as a key goal’, key change reported in the report.

In this blog, I have explained the importance of early savings and investment with a simple story. Why savvy financial planning at early stage? Just! Because of the eight’s wonder ‘compound interest ’.

Sincere money allocation with regular investment has an ability to lift your boats without tide. Before making such decisions always take help from financial planner and adviser.

Recently, my friend Aamer celebrated his first job party at Pizza Hut. Decent salary! Decent company. Thanks! Aamer for the Pizza party.

Before we start our main course plz have a pen and paper ready, so that you can note down few numbers, might you feel little difficulty in number crunching. In this research all calculations are actual.

Aamer’s salary is 25000/- per month. And his current monthly expenditure is 15000/-. Let’s assume that he decides to retire at the age 60 (Aamer’s current age 25). 

Everyone knows that prices are sky rocketing. At the age of 60 Aamer’s monthly expense would be 1.6 Lakh, if we assume inflation to be at 7% (we usually put it little high for safety in case it goes to much high).

If let’s say his survival age is 80. He must have corpus of 3.24 crore at the age of 60 for his golden retirement period (If we take inflation adjust return 1.86 %).

Real story starts now.

Case 1: At the age of 25, he starts savings of 2500/- only per month. At the age of 60, his total corpus would be A1, A2 and A3 (See table 1) if he invests at 8%, 10% and 14% rate of return respectively.

Case 2: If he doesn’t bother about his savings at early age, and starts savings at the age of 35 with 5% of increment in savings compared with age of 25, with 4073/- every month (Because his salary has been increased and he is able to save more at the age of 35 than 25). His corpus at the age of 60 would be B1, B2 and B3 (See table 1) if he invests at 8%, 10% and 14% rate of return respectively.

Case 3: At the age of 45 he thinks, it’s quite late to savings for retirement period. He starts investing 10565/- per month (increase of 10% from savings of age 35). His corpus at the age of 60 would be C1 and C2 (See table 1), if he invests at 8% and 10% rate of return. Here we eliminate 14% rate of return because, at this stage it’s not appropriate to chase high return with high risk.

Case 4: At the age of 55, Ahh! I need to save for my retirement to have same lifestyle. He saves 65415/- per month (increase of 20% from savings of age 45). His corpus at the age of 60 would be D1 and D2 (See table 1), if he invests at 8% and 10% rate of return.

Initially we have calculated, required corpus of 3.24 crore at the age of 60 to fund his retirement lifestyle. None of the figure from the table 1 came near to 3.24 crore. 

How would he survive his retirement? It’s actually simple, just by increase of 1125/- per month. If at the age of 25 he starts saving 3625/- (2500 + 1125) per month and if he chooses to invest at 14% rate of return. 

These figures might confuse you a little, but there is nothing written in air. All figures are actual, and calculated by financial calculator. Most of us think, we have decent salary and having an international bank account. Savings bank accounts are not sufficient at all. I bet that. I haven’t shown comparisons with banks interest rates, otherwise shock could be a very very high to my friend. 

Moral of the story is, when it comes about money, you have a choice to avoid risk, by just paying little premium - in term of insurance or to Financial planner. There are enough options available in India to avoid personal financial crunch. You just need is to bet on time. 

in Lakh

Table 1


  1. :D I never knew your love to blog.. although nice work...!!

  2. This is incredible. Excellent figures. Its time I need to be cautious about savings and investments. Thanks Man. Cheeeers !!!!

    1. How would Aamer survive his retirement?

      Simple: Aamer find rich girl and marry her.

      BYW Superb RJ.... :)

  3. Rutvij while reading this I tend to select you as my financial planner. Nice work bro... with my July salary I 'll start it

    1. Thanks for appreciation and building my confidence.