Satya, 25 years, engineer earns Rs 50,000 per month after taxes. He is wondering what he should be saving on a monthly basis to create a huge corpus. This email will help people like Satya answer a pertinent question HOW MUCH SHOULD I SAVE?
Yes, there are legal and safe ways to get rich over a period of time.
Let’s say you are a 25 yr old who earns Rs 50,000 per month after taxes. If your salary grows at 10% a year, you save 20% of your income, and your savings grow at 10% per annum, you can have a corpus of Rs 12 crores when you retire after 35 years (See illustration below to see how your money will grow over time.
However, its not as easy as it sounds else everyone would have been a millionaire by the time they retired. The good news is that with a bit of planning, it is achievable.
So what are the key challenges:
- Saving 20% of your salary year on year
- Achieving an average annual growth of 10% per annum.
You will need to plan your expenses in such a way that you can continue to save 20% of your income every year.
Secondly, your savings need to be invested in such a way that they provide you with a return of atleast 10% per annum.
The key is to start early as the power of compounding also helps you. (A person who starts saving 5 years later ends up losing almost 2 crores )
There are two key points to achieving this plan:
Creating a custom plan based on your earnings and how much you can save .
Identifying those investments which will give you atleast 10% net returns every year (A FD will give you a net return of 6.3% at current rates )