The secret to making crores is out

“Compounding is the eighth wonder of the world.”

-Albert Einstein

“Take away the terms asset allocation, long term and compounding from a financial advisor’s vocabulary, and he is pretty much tongue-tied,” remarks a friend.

Let me show you exactly how much saving can help. Say you spend Rs 40 every day on cigarettes. Let us see what could happen if you stopped smoking.

Let's also make some assumptions and also suppose that these are valid for the next 30-years.

Nice chunk of change, eh?! What would this money be worth? Let's see: You could afford an Ivy League education for your children. Or could buy out your neighbour’s flat, have a roomier home. You don't need to care how many times your banker looked at your Form 16.

Of course, if you spend Rs 120 per day on cigarettes, you probably won’t live for 30 years!

So you don't smoke? Maybe you're a frequent restaurant-hopper? That would easily mean Rs 2,000 per week.

Keep at it for 30 years, and you would have said goodbye to Rs 15 crore. Think of the penthouses you could have afforded with that kind of moolah!

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Don't fit into the smoker or the gastronome's category? But you have one weakness: you love shopping. Say you spend about Rs 10,000 per month on retail therapy.

Hmm. Over 30 years, a Rs 10,000 investment in an equity fund could fetch you Rs 17 crore. I won't even go into what you can do with that kind of money!

Shopper's chart

Why do you think the otherwise smart, educated people fail to understand this?

Allow me to tell you what I think:

Your life is a function of your habits, not commonsense. It's tough to change your habits. Consider this: most smokers know the damage that 54,750 cigarettes can do to their health. But that 'one' cigarette never seems to matter. Ditto for that 'just one' Coke or chocolate.

Most people don't care about small numbers, and wait for that big amount to come by for them to save.

Funny thing is, if I tell you saving money is very simple and needs very simple methods to make large amounts of money, most people, including you would laugh at me.

But it's just so easy. Start small. Start simple. Save big!

They need complicated tools – day trading, brokerage accounts, futures and options, etc. When you tell them that they can make a lot of money by just being disciplined they will just not believe it!