No savings are small

Often people say that they barely have any monthly savings (specially people in the initial years of their career) and hence they don’t see much point in investing. In this post, I would like to show how even these tiny savings can grow into a significant portfolio.

Let us say that after taking care of all your expenses you are able to save around 5,000/- per month.

If invested wisely, you can easily get a nominal 10.5% annual return in the long term (the amount could be invested in a mix of high yield Deposits + Equity to get a weighted return of around 10.5%).

Also, it is reasonable to assume that you could increase your savings by atleast 10% every year – If you start saving with 5000/- per month, even after 10 years, assuming 10% increase every year, the savings would reach only 12,000/- per month. Highly doable right? Most of the people should be able to do much better than this and get a higher growth rate as well, however, just for the purpose of illustration, I am taking extremely conservative estimates.

Let us also assume that you invest for 25 years only (Someone starting at the age of 25 stops investing at 50).

Based on the above assumptions, if there are no withdrawals from these savings, this is how your corpus could grow in the long term. All with a starting initial investment of 5000 per month and an annual increment of 10%.

If you are still not convinced, this is what would happen if your above savings keep lying in Bank Savings Accounts & FDs. I have assumed a optimistic post-tax 6% rate of interest for a mix of Savings/ FDs/ PF accounts. Given the historical trends, In the long run, these rates should fall even further.

This post is only to depict that no savings are small. The important thing is to get started from early on and invest wisely.

You may check my post on Magic of compounding to see how different investments and growth rates can significantly affect your corpus.

I have also written a series of posts on becoming financially free which you can read here. Please do let me know your thoughts and comments.

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