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 )

Current

Salary

Rs 6,00,000

Salary Increment  10%
Growth in Savings  10%
Saving Rate  20%
25 year

Age

Salary

Savings

25  600,000  120,000
26  660,000  264,000
27  726,000  435,600
28  798,600  638,880
29  878,460  878,460
30  966,306  1,159,567
31  1,062,937  1,488,111
32  1,169,230  1,870,768
33  1,286,153  2,315,076
34  1,414,769  2,829,537
35  1,556,245  3,423,740
36  1,711,870  4,108,488
37  1,883,057  4,895,948
38  2,071,363  5,799,816
39  2,278,499  6,835,497
40  2,506,349  8,020,316
41  2,756,984  9,373,745
42  3,032,682  10,917,656
43  3,335,950  12,676,611
44  3,669,545  14,678,182
45  4,036,500  16,953,300
46  4,440,150  19,536,660
47  4,884,165  22,467,159
48  5,372,581  25,788,391
49  5,909,840  29,549,198
50  6,500,824  33,804,283
51  7,150,906  38,614,892
52  7,865,997  44,049,580
53  8,652,596  50,185,058
54  9,517,856  57,107,135
55  10,469,641  64,911,776
56  11,516,605  73,706,275
57  12,668,266  83,610,556
58  13,935,093  94,758,630
59  15,328,602  107,300,213
60  16,861,462

12,14,02,527

There are two key points to achieving this plan:

  1. Creating a custom plan based on your earnings and how much you can save .

  2. 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 )

These are some of the things you will learn as part of the Fin10 guide on Personal Finance.

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