Easiest way to become a Millionaire
Updated: Jul 26
Hey readers, I am a future Millionaire... Let me explain how? :)
To understand this concept you need basic maths and financial skills.
Did you know?
As per QUARTZ, "For the first time in history, more than 1% of global adults are millionaires—that's 56.1 million millionaires" by 2021.
Introduction:
Whenever you ask someone about their goal in life, the answer comes "to be rich in the future". Please ignore the exceptions :). To achieve this goal we believe in good income sources, ancestral property, lottery, investments etc. If anything else is skipped then please comment below.
All of us do hard work to earn a lot from our respective earning sources. Some of us work hard and might be involved in multiple sources. I agree, this is a must without any excuses. But, do you feel you can be a millionaire with your existing income? If "NO" is your answer, then congrats! I devote this article to you!
The golden rule to compile wealth is "Earning even when you are sleeping". You must have encountered this popular phase before without a proper translation. So, here we are going to discuss the financial decisions taking ideas.
Inflation:
Let's assume you have ₹1,00,000 with you. And, your current age is 25 years. Now, the question is after 10 years, what will be the value of this amount? The formula to calculate the future value is:
Where:
FV: Future Value
PV: Present Value
i: Annual inflation rate
n: Number of years
In our case, PV is ₹1,00,000. Let's consider a standard inflation rate in India is 6% and timeline is 10 years. Please check the result below.
It means, ₹1,00,000 in 2021 will be equal to ₹54,000 after 10 years. If you keep the amount idle in your bank account then what you will get is the quarterly interest on savings account. Moreover, if it is a locker then be ready to face this type of loss. This is why people invest their liquid wealth in Mutual Funds, Stock Market, Land, Gold etc. Now, we will discuss the benefits of investment.
The concept of return on investment deals with Simple Interest and Compound Interest. The interest that we earn from any investment is the profit out of it. Along with the profit it fights with the inflation.
Here is an example for both Simple Interest and Compound Interest.
Simple Interest:
Simple Interest (SI) is calculated by multiplying the initial amount or Principal (P) with Rate of Interest (R) in percentage and Timeline (T) in years. In other words, Simple Interest is calculated and dependent directly on the Principal.
Where:
P = Principal
R = Rate of Interest (Annual)
T = Time period
Let's take the previous example where you have ₹1,00,000 as your Principal. Simple Rate of Interest is 6% and Timeline is 10 years. So, what will be the interest on investment you will get after 10 years?
After 10 years, your investment results ₹60,000 interest and the Future Value will be ₹1,60,000 without conniving the Inflation. If you deduct the inflated amount then the FV will be ₹1,60,000 - ₹54,000, i.e. ₹1,06,000. So, with a least profit you managed to beat the inflation.
Compound Interest:
This is the secret way to achieve your financial goal in life. Let me show you the magic of compounding your wealth.
Where:
P = Principal
R = Rate of Interest (Annual)
T = Time period
Hence, after subtracting the inflated amount, the FV of ₹1,00,000 with an annual Compounding Interest of 6% for 10 years will be ₹1,25,000.
The magic will be incomplete if we skip any practical example. So, let's play with the numbers.
Example:
A father invested a fund of ₹1,00,000 in the Share Market in 2020 after the birth of his child. Let's calculate the FV with a monthly Compounding Interest of 1% for 10 years, 20 years, 30 Years, 40 Years and 50 Years.
Year | Total Interest Amount | Future Value (FV) | Age of the Child |
---|---|---|---|
2020 | ₹0 | ₹1,00,000 | 0 year |
2030 | ₹2,30,038.69 | ₹3,30,038.69 | 10 years |
2040 | ₹9,89,255.37 | ₹10,89,255.37 | 20 years |
2050 | ₹34,94,964.13 | ₹35,94,964.13 | 30 years |
2060 | ₹1,17,64,772.51 | ₹1,18,64,772.51 | 40 years |
2070 | ₹3,90,58,339.70 | ₹3,91,58,339.70 | 50 years |
(Source: www.thecalculatorsite.com)
If you can not believe the amount in the table above, then you can validate the results using the compound interest figurer on the web. I took only 1% monthly compounding interest which is fair in Stock Market if you get a premium stock. In other terms, you can call it CAGR (Compound Annual Growth Rate) gauged here is 12.68% for 50 years.
Case Study:
For your reference, Now, I am going to help you with some real examples in the Indian Share Market.
MRF Tyres: An investment of ₹1,00,000 in Oct 2001 would have given you ₹1,93,00,000 by Feb 2021.
TCS Limited: In Jan 2009, if you could have invested ₹1,00,000 then the current worth of those shares are more than ₹32,80,000 in Sep 2021.
Reliance Industries: A sum ₹1,00,000 invested in Oct 2002 is now turned into ₹57,45,000 by Oct 2021.
You can calculate using the calculator below to get some interesting stats.
Learning:
In each case studies, you must realize that the Rate of Interest (R) and Time Period (T) plays a vital role to multiply your Future Value (FV). Any investment plan with a good rate of interest and long term will help you to become a millionaire. The principal amount is directly proportional to the expected return and inversely related to the timeline. So, choose your plan wisely and take help from your financial advisor as
"Like all securities, mutual funds are subject to market, or systematic, risk. This is because there is no way to predict what will happen in the future or whether a given asset will increase or decrease in value. Because the market cannot be accurately predicted or completely controlled, no investment is risk-free." as per INVESTOPEDIA.
Now, you can refer to the Blog banner containing a quote from the world-famous scientist Sir Albert Einstein.
"Compound interest is the eighth wonder of the world. He who understands it, earns it, He who does not, pays it."
Personal Experience:
I made a great mistake and do not want you all to repeat the same. I started investment planning in my 30's. So, I feel this is a huge monetary loss for me and my family.
This is all about the eighth wonder of the world. I trust this will be helpful for you all. Awaited for your comments on this article.
Reference:
If you do not have a demat account, you can create one with the leading discount brokers of India like Upstox or Zerodha.
Documents required to open an account - complete paperless: Valid PAN card, Address Proof and Bank Proof.
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