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The cost of delay on saving for the future

By Tensing Rodrigues

Yesterday on Wealth Forum I stumbled upon a video of an interview with a Mumbai based investment advisor by name Vinayak Sapre. I liked a simple example that he presented. Of course, there is nothing new either in the idea or the calculation. The idea is old and the calculation is elementary. But most of the time the implication escapes our mind. So I felt I should share it with you.

Let us say a young man wants to start a Systematic Investment Plan (SIP) for investing Rs 15,500 every month for 35 years. He knows he would get around Rs. 10 crore at the end, if his investment grows at 12 per cent per annum. But the first year he gets tempted to buy a few things here and there worth about Rs 1,80,000, and decides to start the SIP from next year. His plan end receipt gets reduced by almost   Rs 1 crore.

If he postpones it by another year, his end sum comes down by about Rs 90 lakhs. Perhaps the big numbers in the example are just for drawing attention. If you downsize the example, the sums get reduced proportionately. The point is a delay of one year in putting your savings plan into action, results in a big difference in the sum that you accumulate. In this example, one year’s delay results in a 50 times greater shortfall.

Or look at it the other way. If you want to have some sum in future, whatever the purpose, earlier you start the lesser you need to contribute every month. Let us suppose you want to make the down payment of Rs 10,00,000 for a flat five years hence. If you start now, you will have to contribute about Rs. 12,500 every month.  If you postpone it by one year, you will have to contribute Rs 16,500 per month.

Or take another instance. Suppose you want to save something for your retired life. You will need the sum about 35 years from now. You are aiming at a sum of say Rs 5 crores. You will need to contribute about Rs 7,750 per month if you begin it now.

Let us suppose, you decide to begin saving after you have settled in a new house, that is say about five years later. Then you will need to contribute about Rs 14,500. Suppose you decide to begin saving for old age after your children finish their primary school, that is say 10 years hence. Then you will have to contribute about Rs. 32,000 per month.

Perhaps you knew this very well; your problem was keeping aside that Rs. 7,750 per month. Because what comes in, goes out! How do you make the ends meet and still have a little bit left? Making the ends meet and still leaving back a little, needs you to pull at both the ends. Most of the time we pull at one end; we try to earn more.  But you need to pull the other end as well; try to spend less. That is difficult, particularly in these times of endless temptations. You need to decide that you are going to spend only on what is necessary. 

There are so many attractive things jumping at us from the roadside hoardings, from the TV, from the pantry gossip, etc that it is difficult to define ‘necessary’. But as one learns to say ‘neti, neti’, that is ‘not this, not this’, slowly the intensity of the temptation decreases. The thought that most often makes us slip is, if we have that, how easy the life would be! Well, the life was never supposed to be easy; because if life is easy, there would no fun in it. It would be the life of your pet dog; eat, sleep and get up to eat more!

Cutting down on gadgets that over simplify work can not only save money but keep us fit and healthy as well. The same is true of cars and two-wheelers. These are to be used only where absolutely necessary. Walking is good for health and releases stress. Use of public transport wherever possible is good for social life and keeps you off the tension of driving. As you get talking to regular co-passengers (in Mumbai they are called train–friends) you have the comfort of knowing that you are not sailing alone in this turbulent sea.

Well these are just a few thoughts on making the ends meet, and still have a little bit left. You can think of many more ways.

*The author is an investment consultant. Readers can send their comments and queries to investment.ideas.shop@gmail.com

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