Friday, October 26, 2007

Art of Saving

"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.

Take a looks at the Smoker's Chart:

Money Spent Per Day Rs. 40 Rs. 80Rs. 120
Money Spent Per YearRs. 14, 600Rs. 29, 200Rs. 43, 800

Money earned if invested over the next 30 years.

SensexRs 11,547,841Rs 23,095,681Rs 34,643,522 
EquityRs 21,099,200Rs 42,198,399Rs 63,297,599
PPFRs 16,53,935Rs 33,07,870Rs 49,61,805

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!

Here is the Gastronome's chart:

Money spent per week Rs. 750 Rs. 1500Rs. 2000 
Money spent per yearRs. 39,000Rs. 78, 000Rs. 104, 000

Money earned if invested over the next 30 years.

SensexRs 30,846,972Rs 61,693,943Rs 82,258,591
EquityRs 56,360,876Rs 112,721,752Rs 150,295,669
PPFRs 44,18,045Rs 88,36,090Rs 11,781,454

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