Give Yourself the Gift of Compounding This New Year

2018 New Year

 

So, do you have your New Year resolutions set yet?

Well, while you resolve to get better health or roam the world or add new skills to your resume, you cannot ignore the need for creating sustainable wealth, which, incidentally, will come handy in realising most of your personal goals, year after year.

Wealth creation is often on everybody’s mind. However, most of us find it quite difficult to achieve it. We generally equate wealth creation with the rich or people who have very high salaries or run highly successful businesses.

This is not quite true!

Wealth creation indeed requires lot of patience and perseverance, but it is not impossible for people who have limited means.

“But how?” You’d ask incredulously.

Well, it is not a secret; if you know how compounding works.

Albert Einstein said that compounding is the world’s eighth wonder. He was not wrong. Compounding is a method of calculating returns where the interests or returns earned on an investment too yield interest. Confused, are you?

Consider a situation where you have invested INR 10,000 in an investment scheme that yields you a compounded interest of 10% each year. What do you think your total returns would be?

Well, in a period of ten years, you would have created a corpus of INR 25,937.42, earning an interest of INR 15,937.42. Had you invested in a scheme paying simple interest, you would have earned an Interest of only INR 10,000 over the same period. Read more about the Power of Compounding.

Mutual funds, especially when you invest through SIPs (Systematic Investment Plans), earn you great market returns along with the goodness of compounding. There are millions around the world who are leveraging mutual funds to create enormous wealth. But, like Rome, great wealth cannot be built in a few years.

Try following the below mentioned rules to make your resolution of getting wealthy come true:

  1. Start Investing Now: Did you know that you can invest in mutual funds with as low as INR 500? Yes, you do not require to invest large sums of money to build a great portfolio. Start investing with an amount you are comfortable with and keep increasing it gradually as your income increases.
  2. Follow the 25% Rule: Before paying others, pay yourself. Strive to clear all your debts – and remain debt free, and before spending your earnings, invest 25% of it in good mutual funds. When you invest before you spend, you will never fall short of money to save or invest.
  3. Distinguish between Needs & Wants: Warren Buffet, one of the world’s richest men, says that if you don’t stop buying things you want, you would soon end up selling things you need. It is important that you buy only what you need and curb your desires, especially in this era of incredible online sales that lure you into buying things you don’t need.
  4. Be Consistent. Invest for a Long Period: The key to riches is in small yet consistent investments over a long period of time – say, upwards of 10 years. When you start investing in mutual funds through small SIPs, month on month, your portfolio will gradually start to grow big. Your portfolio may seem puny in the initial years, but it is bound to make you ecstatic after the first three years of investments – it is then when you start to realize the power of compounding growing your corpus.
  5. Get a Good Advisor: While being self-read and informed of the market moves is a good thing, it helps when you take professional help. Try looking for someone who not only commands good knowledge of the market but is also trustworthy.

Nave Marg, under the guidance of Dr. Celso Fernandes – author of two much-loved books on finance and a trusted financial advisor, is on a mission to spread financial awareness in Goa and the rest of the country.

Nave Marg and Dr. Celso Fernandes wishes all the readers a joyous and prosperous New Year 2018!

 

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